USD/INR: RBI to prioritise growth vs. inflation, constructive stance for the rupee – TDS

India’s Monetary Policy Committee (MPC) meeting is scheduled from 4-6 August. Economists at TD Securities expect the MPC to maintain the repo rate at 4% with an accommodative policy stance. At the same time, they remain constructive INR.

RBI to facilitate the nascent recovery

“We expect the Reserve Bank of India (RBI) to keep both its repurchase rate and reverse repo rates unchanged at 4.00% and at 3.35%, respectively, with an accommodative stance, on Friday, August 6.”

“Focus will likely remain on liquidity and monetary transmission rather than further policy cuts. Although inflation pressures remain elevated the RBI will be more concerned about continuing to facilitate economic recovery against the background of a negative output gap especially given the risks of a third COVID-19 wave.”

“We maintain our view that policy rates will only be hiked in Q1 2022 (Q4 FY 21/22).”

“We remain constructive on the INR and look for the currency to gradually appreciate versus USD. A likely unchanged outcome from the RBI is unlikely to stand in the way of a firmer INR. Oil prices also seem to have stalled, which will likely also give some relief to the INR.”