Reserve Bank of India likely to keep policy on hold in June

In April, India reported above expected wholesale and retail inflation, whereas March industrial production grown came in below consensus expectation. Declining imports in the country resulted in a narrower trade deficit last month. The Reserve Bank of India is likely to keep the policy on hold on June 7 due to an acceleration of inflation in spite of subdued industrial production growth, said Scotiabank in a research report. For now, a stable interest rate outlook might not attract inflows of portfolio. The Indian rupee is expected to take a gradual depreciation path before US FOMC’s meeting in June due to worries regarding the US Fed’s tightening.

“Technically, the pair could be supported by 66 level and the 200-day MA line in the coming sessions”, added Scotiabank.

India’s inflation is likely to be benign in the medium term due to a greater possibility of an “above-normal monsoon rainfall” in 2016. This will give a leeway for the central bank to lower rate when it reviews its monetary policy in August, stated Scotiabank.

“When market fears over the Fed’s interest rate normalization eases, the INR would appreciate modestly versus the USD particularly if the RBI delivers a rate cut in August”, noted Soctiabank.