Continuing its downward slide, the Indian Rupee has hit a new low against the US Dollar on Friday. Indonesia's central bank governor stressed the need to raise interest rates before the Fed to avoid "drastic" capital outflows in the wake of a heavily flagged Fed hike in December. But in light of the prevailing uncertainties, the committee maintained a neutral stance till August.
Retail inflation in August increased 3.69 per cent, slowing from 4.17 per cent in the previous month.
When oil gets more expensive, India has to sell more Rupees to pay for it putting downwards pressure on the currency.
Forty out of 49 economists surveyed by Bloomberg News had predicted a rise of 25 basis points.
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"While the MPC will look through the statistical impact of HRA revisions, there is need to be watchful for any second-round effects on inflation", the monetary policy committee said in its fourth bi-monthly policy statement. "However, there is a probability of change in neutral stance too, as three successive rate hikes with a neutral stance could contradict RBI message", the research report said.
However, if the continental market trends are taken into account, the Indian rupee is the worst performing currency in Asia after seeing a record-breaking 13.5% percent fall in its value in 2018 alone.
However, a likely intervention by the country's central bank aided the Indian rupee to recover before closing at 73.34 (73.3450) to the United States dollar. "The RBI is clearly of the view that they should let underlying trade competitiveness improve gradually as the trade-weighted exchange rate acts as a natural stabiliser". It further noted that inflation will clock 3.8 per cent in the third quarter of 2018-19 and 4.5 per cent in the next quarter of the current fiscal.
High oil prices have been squeezing the rupee, making it less appealing to investors, analysts say. There was speculation that the RBI would increase the Repo rate to boost foreign investment inflows. Until the troubles surfaced to batter local markets around two weeks ago, the consensus was biased towards a 25 basis point hike at the next meeting.
This ties in directly to the current volatility in global financial markets, which will further increase the upside risks to inflation in the coming months.