RBI Scope for Rate Cuts Narrows on record Rupee Weakness

The slump in the rupee to a record low has narrowed the Reserve Bank of India’s scope to cut interest rates next week for a fourth straight meeting.

Governor Duvvuri Subbarao will keep the repurchase rate at 7.25 percent on June 17, 10 of 18 analysts said in a Bloomberg News survey. The rest called for a reduction to 7 percent. The currency’s 6.6 percent drop versus the dollar this quarter, the biggest in Asia, threatens to make imports more expensive.

The rupee reached its weakest level yesterday, weighed down by an unprecedented current-account deficit, the slowest Indian economic expansion in a decade and speculation the dollar will gain if the U.S. scales back monetary stimulus. Subbarao said May 30 that depreciation may stoke inflation and increase the cost of servicing foreign-currency debt.

Concern the Federal Reserve may taper asset purchases as the U.S. economy expands has buffeted most Asian currencies since March 29. The rupee’s drop exceeds the 4.9 percent decline in Thailand’s baht, the 4.8 percent slide in the Philippine peso and the fall of about 4.7 percent in Japan’s yen. China’s yuan has appreciated 1.3 percent in the period.

Bloomberg

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