Five “O” Clock
Report
Highlights of
RBI meeting
· RBI Raises interest rates by 0.25% to
6.50%. Stance neutral.
· Reverse repo rate also increased by
25 bps to 6.25%
· April-September GDP growth seen at
7.5%-7.6%
· FY19 GDP forecast retained at 7.4%
· Oct-March CPI inflation seen at 4.8%
· Apr-June, 2019 CPI Inflation Seen At
5%
· MSP hike can have another round
impact on headline CPI
Our View on RBI
interest rate hike:
There can be one more interest rate hike in December. Consumer price inflation
(CPI) will rise faster than the WPI. The government’s headache will begin as
the months near central election days. Steady growth and rising inflation will
be the RBI’s dilemma.
India’s Nikkei manufacturing purchase managers index fell
marginally in July. July and August fall (if any) could be due to cyclical
factors.
Imports from Iran is expected to reduce as US sanctions kick
in. This will inflate the trade deficit numbers as Iranian crude oil was cheaper
than market rates.
US July private ADP numbers needs to come in over 225,000
for the US dollar to start a rise. FOMC
press conference will impact markets only something significant is said on US
economy or US interest rate policy.
Euro and UK pound continues to consolidate against the US
dollar. Industrial metals fell on renewed Chinese-US trade spat while gold and
silver are steady and wait for ADP and FOMC.
Nifty closed flat before the FOMC and after the RBI interest
rate hike. Interest rate hike by the RBI should attract positive inflows into
the Indian bond markets over the coming months. I have my doubts whether
inflation will be controlled by the interest rate rise.
Rupee closed at one the lowest levels in the past few weeks
at 68.4050 on widening of interest rate difference due to an interest rate
hike.
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