An economic-policy overhaul in the past four months by the government may give more room to spur growth, the central bank said in a report yesterday, while signaling scope for monetary easing is limited by inflation of more than 7 percent and a record current-account deficit. The RBI will cut its benchmark repurchase rate to 7.75 percent from 8 percent, according to 25 of 29 economists surveyed by Bloomberg. Three predict a reduction to 7.5 percent and one sees no change.
“The RBI’s mention of suppressed inflation and a widening current-account deficit as reasons to continue its calibrated stance on easing indicates” the greater possibility of a 25 basis point rate cut rather than a reduction of 50, Tushar Poddar, a Mumbai-based economist at Goldman Sachs Group Inc., wrote in a report today. The rupee will appreciate gradually over the “medium-term” as the shortfall narrows, he wrote.
The currency was little changed from yesterday at 53.9250 per dollar as of 9:27 a.m. in Mumbai, according to data compiled by Bloomberg. It touched 53.9600 earlier, the weakest level since Jan. 18. One-month implied volatility in the rupee, a gauge of expected moves in the exchange rate used to price options, was steady at 10 percent.
The shortfall in the current account, the broadest measure of trade, widened to $22.3 billion in the quarter through September, the latest official data show. Goldman predicts the deficit will narrow to 3.6 percent of gross domestic product in 2013 from an estimated 4.5 percent in 2012. The rupee will advance to 52 in 12 months, the bank forecasts.
Three-month onshore rupee forwards traded at 55.00 per dollar, compared with 54.90 yesterday, according to data compiled by Bloomberg. Offshore non-deliverable contracts were at 54.75 versus 54.78. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.
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