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According to analysts at TD Securities, the fall in Indian currency and higher oil prices may force the RBI’s hand and it will likely hike the rates in its forthcoming meet.

Key Quotes

“INR has depreciated by 12% (vs. USD) year to date and has continued to underperform its peers in the region.”

“India’s authorities have belatedly stepped up support for the currency through a variety of measures in a desire to limit FX intervention and FX reserves loss. Nonetheless, oil prices have continued to push higher, limiting any potential for the INR to strengthen.”

“We think that RBI will join other central banks such as Bank Indonesia, in hiking rates to provide further support to the currency. While a rate hike will be currency supportive and may help to crimp import demand we expect the INR to continue to depreciate, albeit at a slower pace in the months ahead. As such we have revised our forecasts for USDINR and now expect a move to 74.0 by end 2018.”