By -
Sep 10, 2014
Goldman Sachs Group Inc. has
scrapped its forecast for the Reserve Bank of India to raise
borrowing costs after a pickup in monsoon rains and a drop in
oil prices tempered the inflation outlook.
The U.S. lender, which had expected a 50-basis-point increase in the benchmark repurchase rate this year followed by a reduction of the same magnitude in the second half of 2015, now sees the RBI staying on hold through the end of next year, it said in a report. Consumer-price (INFUTOTY) gains slowed to 7.8 percent in August, from as high as 11.16 percent in November, the median estimate in a Bloomberg survey shows before data due Sept. 12.
“Near-term risks to inflation have receded due to weaker oil prices and a significantly improved monsoon,” Tushar Poddar, an economist at Goldman in Mumbai, wrote in the report dated yesterday. “While our base case is now for the RBI to remain on hold, the probability of a rate hike is higher than that of a rate cut. The biggest change under the new government has been a more investor-friendly mindset.”
Measures taken by Prime Minister Narendra Modi, who took office after a landslide election win in May, will spur economic growth, lure capital inflows and support the rupee, Goldman said in the report. A shortfall in India’s annual rains, crucial for crops from sugar to rice and cotton, has narrowed to 11 percent from more than 40 percent in June, official data show, and Brent crude prices have retreated 14 percent from this year’s high of $115.71 per barrel in June.
RBI Governor Raghuram Rajan, who raised borrowing costs three times in the past year to combat inflation, has left them unchanged since January. The central bank will hold the benchmark rate at 8 percent through the end of 2014, according to 16 of 26 analysts surveyed by Bloomberg. Four see a reduction to 7.75 percent, while five estimate a 25-basis-point increase and one expects an advance to 8.5 percent.
Modi’s decisions to cut red tape and allow more foreign investment in industries including railways and defense have buoyed investor confidence, Goldman said in the report. The rupee has rebounded 13 percent from a record low of 68.845 per dollar reached in August 2013, the world’s best-performing emerging-market currency over that period, data compiled by Bloomberg show.
“We think the Indian rupee will continue to trade in a narrow range, with the RBI intervening to prevent any sharp appreciation,” Goldman’s Poddar wrote.
To contact the reporter on this story: Anil Varma in Mumbai at avarma3@bloomberg.net
To contact the editors responsible for this story: James Regan at jregan19@bloomberg.net Andrew Janes, Simon Harvey
The U.S. lender, which had expected a 50-basis-point increase in the benchmark repurchase rate this year followed by a reduction of the same magnitude in the second half of 2015, now sees the RBI staying on hold through the end of next year, it said in a report. Consumer-price (INFUTOTY) gains slowed to 7.8 percent in August, from as high as 11.16 percent in November, the median estimate in a Bloomberg survey shows before data due Sept. 12.
“Near-term risks to inflation have receded due to weaker oil prices and a significantly improved monsoon,” Tushar Poddar, an economist at Goldman in Mumbai, wrote in the report dated yesterday. “While our base case is now for the RBI to remain on hold, the probability of a rate hike is higher than that of a rate cut. The biggest change under the new government has been a more investor-friendly mindset.”
Measures taken by Prime Minister Narendra Modi, who took office after a landslide election win in May, will spur economic growth, lure capital inflows and support the rupee, Goldman said in the report. A shortfall in India’s annual rains, crucial for crops from sugar to rice and cotton, has narrowed to 11 percent from more than 40 percent in June, official data show, and Brent crude prices have retreated 14 percent from this year’s high of $115.71 per barrel in June.
Quickening Growth
Goldman predicts Asia’s third-largest economy will expand 5.6 percent in the fiscal year through March 2015. Gross domestic product increased 4.7 percent in the previous period, a pace that was near the decade-low 4.5 percent recorded the year before. The U.S. lender still sees the rupee weakening to 61 per dollar, 62 and 63 in three, six and 12 months. The currency fell 0.4 percent to 60.8225 as of 9:21 a.m. in Mumbai, according to prices from local banks.RBI Governor Raghuram Rajan, who raised borrowing costs three times in the past year to combat inflation, has left them unchanged since January. The central bank will hold the benchmark rate at 8 percent through the end of 2014, according to 16 of 26 analysts surveyed by Bloomberg. Four see a reduction to 7.75 percent, while five estimate a 25-basis-point increase and one expects an advance to 8.5 percent.
Modi’s decisions to cut red tape and allow more foreign investment in industries including railways and defense have buoyed investor confidence, Goldman said in the report. The rupee has rebounded 13 percent from a record low of 68.845 per dollar reached in August 2013, the world’s best-performing emerging-market currency over that period, data compiled by Bloomberg show.
“We think the Indian rupee will continue to trade in a narrow range, with the RBI intervening to prevent any sharp appreciation,” Goldman’s Poddar wrote.
To contact the reporter on this story: Anil Varma in Mumbai at avarma3@bloomberg.net
To contact the editors responsible for this story: James Regan at jregan19@bloomberg.net Andrew Janes, Simon Harvey
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