RBI keeping status quo; focus back to basics – US yield and Crude

Published On - October 8, 2018

Cube Edugains Daily Market Update
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INR forecast: INR opens weaker at 73.94 as against last week close of 73.77 and may trade the day between 73.70-74.25 under two way price action. 

On Friday, RBI left interest rate unchanged against expectation of rate hike to prop up INR. RBI took a prudent step as it knew the a small interest increase would not impact INR while it would impact non-currency linked part of Indian economy. 
 

Going forward, INR may still weaken and see levels of 75-77. But it may also see event driven gains which could be short lived. For example, any decisions by NCLT on Essar steel may bring inflow of about USD 6bn and this could result in short term gains.

Globally the key risks for us are rising US yields and crude prices.

Regarding Govt intervention of NRI bonds or sovereign bonds, we think Govt may wait and announce these when there is emergency ( when INR weakens disproportionately to other EMs). As of now that situation is not there.

This morning most of the Asian currencies and equities are weaker. China eased reserve requirement for few banks to ease liquidity in markets and said that the move would not have impact on CNY.