India likely to cut rates, eyes on FOMC minutes

Reserve-Bank-of-India

Apr 04, 2016 (LBO) – Both the Reserve Bank of India and the Reserve Bank of Australia will announce interest rate decisions on Tuesday, with Moody’s Analytics expecting the RBI to cut its policy rate by 25 basis points to 6.5 percent.

The Monetary Authority of Singapore will also meet this week, and analysts expect rates will remain on hold.

On the Indian outlook, Moody’s Analytics said: “Inflation has largely been within the central bank’s 6 percent target, and the continued fiscal consolidation road map suggests that inflation is unlikely to spike.”

“High-frequency indicators suggest that growth hasn’t gained momentum in recent months,” Moody’s Analytics said, according to a CNBC report.

ANZ, however, expects investments in India to remain subdued due to high leverage as banks will be focused on managing their non-performing loans after the RBI set a March 2017 deadline for them to clean up their balance sheets.

Australia is expected to keep interest rates on hold at the record low 2 percent, while maintaining an easing bias.

The U.S. Federal Open Market Committee will release minutes of its March meeting on Wednesday — closely watched for signs of a rate increase soon.

“The crux of the dovish argument stems from concerns about global risks and we anticipate the minutes will be littered with references to this,” economists at RBC said in a note.

CME Fed Fund Futures indicate a 5 percent chance of a rate hike in April, and a 66 percent chance of a hike by December. At their March meeting, the Fed forecast two rate increases this year, compared with four in their December estimates.

Impacts of policy decisions are likely to be felt in currency markets, after Asian currencies posted their best monthly rally in more than seven years.

South Korea’s won has led the March rally with an 8.2 percent advance and Malaysia’s ringgit has followed with a 7.8 percent increase, its biggest since 1998. A gauge of 10 Asian currencies excluding the yen has risen 3 percent.

Nevertheless, Goldman Sachs predicts weakening from now onwards — a 14 percent plunge in the yen to 130 per dollar in the next 12 months, a level last seen in 2002, and a 7.6 percent drop in the yuan to 7 versus the greenback, which would be the weakest since May 2008, according to a Bloomberg report.