DBS forecasts a 6.0% inflation print for India in October, signaling a likely RBI rate hike in December, though a $30 billion trade deficit continues to pressure the rupee.
DBS expects October headline inflation to jump to 6.0% yoy from 5.5% and core to quicken to 4.5-4.6%, pushing inflation past the top of the RBI target range, with a second consecutive rate hike expected in December. Higher rate expectations typically support the currency, and cooling overnight OIS rates on softer oil prices ease concerns of overly aggressive hikes. A wide goods trade deficit above $30bn in October is the offsetting negative for the rupee.
Because inflation above the RBI's target range is expected to lead to another rate hike in December, and higher rates tend to attract flows and support the currency.
DBS expects India's goods trade deficit to remain wide at above $30bn in October, which is a negative factor for the currency.
The article notes overnight OIS rates have cooled as declining oil prices eased concerns over aggressive rate hikes, even as DBS forecasts a second consecutive rate hike in December. Mixed signals between near-term rates easing and a December hike expectation make the net effect on benchmark bond yields unclear.
DBS expects a second consecutive RBI rate hike in December after inflation is seen rising above the top of the RBI's target range in October.
DBS Group Research projects India's headline inflation will climb to 6.0% in October, driven by rising food costs and base effects. This breach of the RBI's target range has prompted expectations for a second consecutive interest rate hike in December. While higher rates typically support the rupee, a persistent goods trade deficit exceeding $30 billion remains a significant headwind for the currency.
Inflation exceeding the RBI's target range is expected to trigger a second consecutive rate hike in December; higher interest rates generally attract capital inflows and support the currency.
DBS expects India's goods trade deficit to remain wide at above $30 billion in October, which serves as a fundamental negative factor for the rupee.
DBS forecasts a second consecutive RBI rate hike in December, following an expected rise in headline inflation above the central bank's target range.