RBI Likely To Hike Rates By 25 BPS In The June Policy Meet


Dramatic Rise In Petrol & Diesel Prices
In a dramatic turn of events, petrol and diesel prices in India have risen by almost Rs 5 in the last few days. What’s even more surprising is the fact that Global Crude oil prices are likely to rise further in the coming months. Since the last RBI Monetary Policy meet on April 5th crude oil prices have seen a sharp rise of 16.97% from $61.81 to $72.30 a barrel. With the United States withdrawing from the Iran Nuclear deal, the crude oil story looks evenly poised to set steeper benchmarks in the international energy markets.

Weakness Of The INR
The hawkish stance of the Federal Reserve on the other hand continues to push the 10year treasury yield curve above its 4 year high of 3.04 and is currently trading at 3.10. These global headwinds have taken an adverse toll on the rupee which has weakened by 5.14% since the last RBI policy meet in April 2018. The USD/INR has climbed from 64.96 to its levels of 68.30.


Current Account Deficit
Crude being one of the biggest imports of India is likely to impact India’s current account deficit. Imagine a situation where the INR has weakened by 5.73% and crude prices have risen by 16.97%. The out of such a scenario is loud and clear, massive funds flowing out of the Indian economy. According to Goldman Sachs, India’s Current Account Deficit is likely to stand around 2.4% in 2018-19.

India’s Stock Market Likely To Crash
India’s equity market is already feeling the heat with the benchmark index correcting 5% from its recent high. The Index is trading at 10603 even as I write this report, and it’s likely to drop further down to levels of 10000 in the coming months. Even though majority of the stocks are trading close to their fair value it is the strength of the dollar that is impacting the profit margins of foreign investors.


RBI June Policy
In its Monetary Policy Meet on June 6th 2018 the RBI is likely to push up the repo rates by 25 BPS. Although experts might argue against this view sighting the fact that India’s inflation numbers are at 4.58%, which is below the 6% target that the RBI had set in its April meet. However one needs to factor in the change in the Global factors visa Vis the risk those head winds pose on the Indian economy. Rising the rates in the June policy will help the RBI stem the out flow of funds from India and will also help improve the health of the PSU’s that are over laden with NPA numbers. Above all it will keep the currency from hitting levels of 70 which at the current moment is the most likely outcome of the Fed aftermath.


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Dramatic Rise In Petrol & Diesel Prices
In a dramatic turn of events, petrol and diesel prices in India have risen by almost Rs 5 in the last few days. What’s even more surprising is the fact that Global Crude oil prices are likely to rise further in the coming months. Since the last RBI Monetary Policy meet on April 5th crude oil prices have seen a sharp rise of 16.97% from $61.81 to $72.30 a barrel. With the United States withdrawing from the Iran Nuclear deal, the crude oil story looks evenly poised to set steeper benchmarks in the international energy markets.

Weakness Of The INR
The hawkish stance of the Federal Reserve on the other hand continues to push the 10year treasury yield curve above its 4 year high of 3.04 and is currently trading at 3.10. These global headwinds have taken an adverse toll on the rupee which has weakened by 5.14% since the last RBI policy meet in April 2018. The USD/INR has climbed from 64.96 to its levels of 68.30.


Current Account Deficit
Crude being one of the biggest imports of India is likely to impact India’s current account deficit. Imagine a situation where the INR has weakened by 5.73% and crude prices have risen by 16.97%. The out of such a scenario is loud and clear, massive funds flowing out of the Indian economy. According to Goldman Sachs, India’s Current Account Deficit is likely to stand around 2.4% in 2018-19.

India’s Stock Market Likely To Crash
India’s equity market is already feeling the heat with the benchmark index correcting 5% from its recent high. The Index is trading at 10603 even as I write this report, and it’s likely to drop further down to levels of 10000 in the coming months. Even though majority of the stocks are trading close to their fair value it is the strength of the dollar that is impacting the profit margins of foreign investors.


RBI June Policy
In its Monetary Policy Meet on June 6th 2018 the RBI is likely to push up the repo rates by 25 BPS. Although experts might argue against this view sighting the fact that India’s inflation numbers are at 4.58%, which is below the 6% target that the RBI had set in its April meet. However one needs to factor in the change in the Global factors visa Vis the risk those head winds pose on the Indian economy. Rising the rates in the June policy will help the RBI stem the out flow of funds from India and will also help improve the health of the PSU’s that are over laden with NPA numbers. Above all it will keep the currency from hitting levels of 70 which at the current moment is the most likely outcome of the Fed aftermath.


 
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