India needs weak rupee; RBI to be hawkish today: CLSA

Moneycontrol Bureau

CLSA economist Rajeev Malik expects the RBI to take a hawkish stance at its policy review meet today, as inflation continues to pose a major headache.

“The pleasant current wave of global risk-on doesn’t change the hard reality of the uncomfortably high inflation for the RBI,” he wrote in a note to clients this morning.

And he does not expect the RBI to announce a reversal of its recent liquidity tightening measures in a hurry. In July, RBI had raised short term borrowing rates for banks also stiffened the CRR norms.

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"An outright dismantling of the convoluted short-term interest rate defence announced in July is more likely only in November/December. This is because there will be greater clarity on the overseas capital inflows, especially from non-resident Indians, via the RBI’s temporary swap windows,” Malik wrote. 

He expects the rupee to strengthen to around 60 to the dollar near term, but expects it to slide into a range of 65-68 over the next 6 months. And that may not be a bad thing for the rupee he argues.

INR’s recent 10% rally has narrowed its undervaluation in REER terms. Given the weak macro foundations, India still needs a weak currency,” says the CLSA note.