Reserve Bank of India (RBI) monetary policy meeting decision to maintain its key rate at 6% last Thursday rather than reduce it by 25 basis points shows that it got it right. Indian inflation was contained during first quarter 2018 period, with March consumer price index given at +4.28% (prior: +4.44%) and below its 3-year average of +4.37%, supported by stable price components and particularly from Food and Beverages (+3%), accounting for 54% of the index as well as Fuels and Lighting (+5.73%) which could drastically impact inflation data due to India’s large oil imports. February industrial production points the same way, given at +7.10% (prior: +7.40%) and maintained at 2 years highs, signaling strong economic momentum for the beginning of the year.
Recent economic data had a positive impact on equity markets, valued at 34’300 (+1.44% year-to-date) and increasing by +2.01% since Monday. 2-year, 10-year and 30-year treasury yields keep increasing since the beginning of the year as investor sentiment continues to improve.
Accordingly, we suspect RBI to maintain its repo rate at 6% for the near term, expectations supported by RBI’s 12-month inflation forecast given in the range of 4.50% - 4.60%, signaling a rather stable price outlook.
USD/INR strong rise started in January is faltered since mid-February. The currency currently valued at 65.25 is expected to trade sideways in the short-term, maintained at the 65.30 range.
By Vincent Mivelaz