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Markets round up: Next RBI move likely to be a rate hike

LiveMint logoLiveMint 21-03-2017 Livemint

With the damaging effects of demonetisation on the economy waning and retail inflation slowly inching higher, the likelihood that the next move of the Reserve Bank of India (RBI) would be a rate hike is getting stronger. Nomura Securities’ proprietary heat maps show that effects of demonetisation were transitory, with most segments showing modest to high improvement. The Nomura RBI Policy Signal Index (NRPSI), which measures the likelihood of monetary easing versus tightening in the near term, edged higher in February, but remains in the neutral zone. The brokerage firm expects policy rates to remain on hold in 2017, but the rising NRPSI value suggests that the next move will likely be a hike rather than a cut triggered by higher inflation and narrowing interest rate differentials.

Rupee overvaluation in REER terms not stark now

The Indian rupee has surged in the last one month in tandem with the turnaround in the outlook for the dollar. The US currency, earlier touted to go from strength to strength, now finds itself under duress and analysts are rerating emerging market currencies. This, along with domestic factors such as a tightening fiscal and monetary policy, augurs well for the rupee. Further, Citigroup in a note indicates that in real effective exchange rate (REER) terms, the rupee may be overvalued, but such an overvaluation is not stark and worrisome. “While RBI pegged 36-country REER for INR at 116.4 in Feb, we estimate that REER overvaluation increased by 1.3% MoM (month-on-month) in March,” the firm said in a note. Citigroup expects the rupee to appreciate to 65 per dollar in the short term but drift down to 67 per dollar by the end of the year.

India may lose chance to make energy storage tech

Even as India struggles to gain a foothold in solar module manufacturing, it is at the risk of losing manufacturing opportunity in the forthcoming renewable energy technology—energy storage. According to Bridge to India, a consultant, China is helping build a local ecosystem for lithium ion-based batteries through demand creation and incentives, whereas India has barely woken up to the opportunity. By 2020, China is estimated to have more than 60% of global lithium ion battery mass production capacity. Unless India moves quickly with a cogent long-term policy, it runs a risk of missing the bus on domestic manufacturing of the crucial energy storage technology, Bridge to India said in a blog.

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