India’s rupee fell for a second day on speculation faster inflation will prompt the central bank to boost borrowing costs for the second time in two months, setting back efforts to arrest an economic slowdown.
The Reserve Bank of India will raise its repurchase rate to 7.75 percent from 7.50 percent today, according to 32 of 42 economists in a Bloomberg survey. One forecasts a move to 8 percent and nine see no change. Policy must tackle elevated inflation amid “tepid” growth, the RBI said in a report yesterday. The rupee has rebounded almost 12 percent from a record low of 68.845 per dollar in August, helping cut the cost of imports and aiding the RBI’s efforts to curb price gains.
“The stance and recent action by the new governor suggest the odds of a rate hike have increased significantly,” strategists at Credit Agricole CIB, including Frances Cheung in Hong Kong, wrote in a research report today. “However, the recovery of the rupee since September suggests the RBI could be tempted to keep rates unchanged in order not to add to the Indian economic soft patch and buy time to gauge where inflation goes looking forward.”
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