statesman news service
MUMBAI, 14 JUNE: The markets suddenly looked perked up ahead of the Reserve Bank of India’s crucial credit and monetary policy statement on Monday as the WPI inflation slowed further to 4.7 per cent ~ lowest since November 2009 ~ raising expectations of a cut in the central bank’s shot-term lending rate or repo rate by minimum 25 basis points.
The benchmarks soared and the debilitated partially convertible rupee firmed up against the American dollar. Much to the markets’ and government’s relief the rupee which had sanked to the lowest ever 58.98 for one US dollar retrieved remarkably today to end the week at 57.51 against 57.98 yesterday.
The rupee volatility closely associated with the yawning current account deficit would be the only factor that might deter the central bank Governor Mr D Subbarao to defer the rate cut, say analysts. They also cite increase in forex reserve for the week ended 7 June by $1.78 billion to $ 289.7 billion.
The S&P Bombay Stock Exchange Sensitive Index and CNX Nifty of the National Stock Exchange increased by 385.84 points and 110.30 points respectively in intra-day trade on Friday.
The rupee with other regional currencies was under 57.50 a dollar when the stock markets closed for the week. The Sensex closed for the week 350.77 points or 1.86 per cent up at 19,177.93. The Nifty gained 109.30 points or 1.92 per cent to end at 5,808.40. However, for the week both indices were down 1.3 per cent because of three gruelling sell-off sessions. In Nifty 46 of 50 stocks advanced and four declined. In the Sensex the ratio was 26:4.
Analysts say the timely arrival of monsoon in more than half the country is another positive sign that should prompt the RBI to attend to the ever-growing demand for cut in interest rate. As Dalal Street was gearing up to shut for the week, Fitch, the global rating agency came out with a report improving the rating of 10 domestic financial institutions ~ a majority of them state-run ~ with “stable” credit. They include SBI, PNB, IDBI Bank, BoB, Canara Bank, ICICI Bank and Axis Bank.
Barclay’s in a note today said: “This is the second inflation print ~ and consecutive ~ since November 2009 to be below five per cent typically the lower end of the RBI comfort range. We maintain our expectation that the RBI will cut the repo rate by 25 bps on 17 June.”
However, investment banker Goldman Sachs resisted making a forecast as it sees a weak rupee hurting the country’s interest. It revised upward its three and six month forecast for the rupee from an initial 55 a dollar to 58 a dollar in three months and 53 a dollar over six months. For 12 months, Goldman Sachs says the rupee may trade 56 a dollar from earlier prediction of 52 a dollar.