Sept. 16 (Bloomberg) -- Jonathan Cavenagh, a currency strategist in Singapore at Westpac Banking Corp., comments on the outlook for India’s rupee after the central bank increased borrowing costs.
The Reserve Bank of India raised the repurchase rate to 8.25 percent from 8 percent and said rising inflationary expectations remain a key risk. Fourteen of 17 analysts in a Bloomberg News survey predicted the decision and three expected no change.
The rupee pared gains after the announcement. It rose 0.2 percent to 47.4725 per dollar as of 1:21 p.m. in Mumbai, according to data compiled by Bloomberg.
“It’s difficult to build a positive near-term outlook for the rupee. Global risk aversion will persist and leave equity market investors wary. The rupee might fall to 48.50/80 a dollar in the coming few weeks.
‘‘With inflation still the number one concern for the RBI, further hikes can’t be ruled out. My concern is that with the global growth outlook not looking too great at the moment, the risks of hard landing in the economy -- whilst pretty small at this stage -- are probably increasing.
‘‘However, we think the Fed will have to embark on a fresh round of quantitative easing into 2012 and that will weigh against the dollar. So by mid-2012 we see the rupee trading at or stronger than 46.50 and possibly stronger than 46 by the end of 2012.’’
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