Federal governor has been hiking to control CPI inflation - Tata Mutual Fund
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MACRO:CURRENCY
* US dollar has appreciated against all the emerging market and developed market currency due to aggressive rate hikes by US Federal Reserve.
* Federal governor has been hiking to control CPI inflation. US CPI inflation continue to remain high with latest CPI inflation print at 7.8 %, FOMC members expect CPI inflation to average 5.9 % in 2023 and 3.1 % in 2024. The Fed mandate is to keep CPI inflation at 2 % levels.
* The Indian currency has depreciated by 9 %against the dollar, other advanced countries like U.K , Euro and Japanese currencies has fallen by 12 % to 20 % against the dollar.
* Developed markets are lagging the US in terms of rising rates. Most of the advanced economies including china are facing recessionary conditions , which makes aggressive rate hikes difficult.
* The Indian currency has depreciated against the dollar but appreciated against the Euro, British pound by 3 % and against the yen by 8 % in the current financial year.
MACRO:FOREX RESERVES
* RBI has been intervening in the currency markets to control volatility and not the direction of rupee against the dollar. This has led to forex reserves coming down from USD 630 billion at the start of the financial year to USD 550 billion as on 25th November 2022.
* The currency is expected to be volatile with a depreciating bias as current account deficit is expected to be 3.5 % for this financial year.
* Indian imports of oil, coal, electronic items and Capital goods has increased in the last few years and exports has not kept pace with this high imports.
* The balance of payment position of India is expected to be around 50 Billion USD negative.
* RBI’s ability to intervene by selling dollars is constrained due to import cover coming down to 8.3 months from 14 months prevailing at the start of the financial year. The Indian Rupee is expected to trade in the band of 81 to 83 against the dollar.
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