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Analysts at TD Securities expect the Reserve Bank of India (RBI) to hike its repo rate by 25bps to 6.75% on Friday.

Key Quotes

“The policy meeting, just over a week after the Fed, will take place against a difficult background for Indian markets. Although global risk appetite has improved, India’s markets continue to suffer in the wake of high oil prices, which despite recent measures, will likely worsen India’s current account deficit.”

“Additionally investor confidence has worsened in the wake of growing concerns over India’s shadow banking sector, which has contributed to a liquidity crunch. Against this background foreign portfolio outflows have resumed. A rate hike would combine with other measures to help support the INR, but could lead to a further push higher in Indian bond yields.”

FX: INR has benefited from an improvement in risks appetite and official measures but higher oil prices pose an ongoing threat. A 25bps rate hike will help the INR, but as it is already priced in, any support will be limited. A no move would likely result in further pressure on the currency, while a 50bps hike may be excessive.”