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The USD/INR currency pair is expected to trade sideways within the 63.30-64.50 range, according to a recent report from Commerzbank. The forecast comes after December CPI came in within expectations at 5.2 percent y/y.
Inflation holds above the central bank’s mid-point target of 4 percent. The main drivers were once again higher food and energy prices. For example, the food price index rose to 5 percent y/y due to elevated vegetable prices which were up nearly 30 percent y/y.
Firmer oil prices will also pose upside risks to inflation going forward. Elsewhere, November industrial production also released last Friday was firmer than expected at 8.4 percent y/y (market expectation: 4.4 percent). Overall, the continued uptick in inflation effectively removes any chances of another RBI rate cut.
"The first RBI policy meeting is on February 7 and we expect RBI to stay on hold at 6 percent. RBI will remain watchful on rising inflation risks in the coming months but we don’t expect them to hike anytime soon. We still expect inflation to stay within RBI’s 2-6 percent inflation target range this year," the report added.
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