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Equity News

RBI may not cut interest rates tomorrow

3 October 2017 (12:57PM)

 

Market participants will be closely watching the outcome of RBI policy tomorrow. A rate cut is needed to boost the dried credit growth. The policy rates are already at multi-years low. RBI had cut the Repo rate by 25 bps to 6.0% in August 2017.  But going forward, RBI may wait for some more months before cutting policy rates further. The primary concern for RBI will be inflation and change in stance of the US Fed, which can depreciate the Indian Rupee significantly. 

inflation for August 2017 was 3.36% YoY which is in the comfort level of RBI. But it may wait for some for months to see whether the inflation is persistently under control or it is temporary. Another aspect to be noted is that the Brent crude oil price has gained ~13% in September 2017 which can raise the inflation.

In addition, the US Fed has already disclosed that it will contract its balance sheet from October 2017 which will further put pressure on the Indian Rupee. FIIs have already started to ditch the Indian market as US Fed is expected to raise the interest rates in December 2017. FIIs have already sold ~Rs 11,000 crore in Indian equity market in September 2017. In addition, depreciation of Indian Rupee is considered as inflationary as India import ~80% of its oil demand.

Therefore, investors should be patient and pay attention to RBI’s commentary on GDP growth, government borrowing, inflation and future direction of policy rates, which will impact the Indian market in long term.

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