USD/INR likely to consolidate in the near term, currently holds below 70 level: Commerzbank

The USD/INR currency pair is expected to consolidate over the near term, currently holding just below the 70 level, according to the latest research report from Commerzbank; the pair had risen steadily off the low 68.00 level in the past three weeks, tracking the rise in oil prices.

The latest minutes of the April monetary policy showed not all policy members are board for aggressive rate cuts ahead. Four of the six members voted for a 25bp cut to 6 percent in April with two opting for no change, including Deputy Governor Acharya.

Five members voted to keep the neutral policy bias while the well-known dove opted to shift an accommodative stance. The arguments are well known. The doves highlight the downside risks to global growth, moderating domestic growth, and the fact that inflation is expected to stay below RBI’s mid-point 4 percent target in the coming year.

The hawks on the other hand highlight the uncomfortable observation of still stubbornly high core inflation of above 5 percent, which is at the upper end of the 2-6 percent target band. An uncertain monsoon season ahead also heightened their concerns over acting too hastily, the report added.

Oil prices also remain a key determinant particularly given the steady rise this year to above USD65. As a rough point of reference, one dovish member noted that oil prices will only be a concern for inflation if they breach the USD80-85 are on a sustained basis.

"Overall, the RBI board maintained its dovish tilt, implying at least one more 25bp rate cut this year. This could come as early as the next meeting in June," Commerzbank further noted in its report.