- I believe markets in the long run are very efficient
- Fluctuations can happen, effort is to reduce undue volatility
- We have sufficient reserves, current account mangeable
- Should get good capital flows going forward due to good fundamentals
- We don’t target any particular growth rate in credit
- Expect policy rates to be low as inflation will stay benign
- 5% of INR depreciation leads to 35 bps of inflation
- Quantum of system liquidity will be managed to ensure monetary transmission is happening
- Banking liquidity at the moment is sufficient, not targeting any level
- There will be ample liquidity as long as we are in an easing cycle
The RBI seems to confirm that it won’t waste reserves again trying to intervene in the market to stop the INR depreciation, so this should keep weighing on the rupee.
As a reminder, the RBI intervened more forcefully in October near the 88.80 USD/INR level but as it always happens when the fundamentals remain against a currency, the INR resumed its fall and after breaking above the 88.80 level, the momentum increased.
Today, the RBI cut the repo rate by 25 bps as expected amid record low inflation that in October fell to 0.25%. The RBI targets 4% headline inflation with a +/-2% tolerance band. The very low inflation rate gives the RBI space to keep easing and support growth.
This article was written by Giuseppe Dellamotta at investinglive.com.