Fortis Bank analysts expect Indian currency to rise 9 percent by the end of this year as the Reserve Bank of India will have to increase interest rates to fight the accelerating inflation growth.
India’s currency is currently the second worst performing among ten most-traded Asian currencies (excluding the Japanese yen) this year. Yesterday it reached its lowest rate against U.S. dollar in 13 months.
Reserve Bank of India will probably have to go up with the interest rate, which is currently at 7.75 percent, in order to hold down the record-breaking inflation that accelerated to 7.83 percent in late April and is above the bank’s estimate of 5.5 percent:
Economic growth is pretty much intact but inflation is a new threat and there is no scope for the central bank to have a neutral monetary policy approach… I am leaning towards believing that the central bank will tighten monetary policy further, despite what the economy is going through, and will also use the exchange rate.
USD/INR reached 43.21 rate yesterday on Forex — the lowest since April 3, 2007 and is currently trading near 42.725 as of 12:27 GMT. Fortis Bank expects it to go down to 39.4 by the end of 2008.
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