On Wednesday the Reserve Bank of India (RBI), policy meeting will be key to EM pricing. It’s widely expected the RBI to hold rates unchanged however, there is a high probability of a surprise rate cut. India’s economic expansions has slowed significantly causing concern with policy makers. While drop in real interest rates despite rise in upward pressure on inflation, will force the RBI to act. Should the policy meeting stick expectations the tone of the statement will likely indicate that additional policy rate cut is on the table. Shift in tone or cut combined with narrowing US-India rate spread and uncertainty over EM reaction of fed policy will keep INR weak.
By Peter Rosenstreich