Mumbai, July 11: The rupee depreciation is likely to hurt the inflation fight and restrict the Reserve Bank from cutting its policy rates at the forthcoming monetary policy review by month-end.
“If the rupee averages at 58 to the dollar this fiscal, the average headline inflation could rise to 6 per cent compared to our baseline call of 5.3 per cent. This leaves little room for monetary easing despite the sharp slowdown in GDP growth,” ratings agency Crisil said in a report.
The central bank would cut rates by a maximum of 0.5 per cent in the remainder of the fiscal, it added.
The Reserve Bank will announce the first quarter monetary policy on July 30.
Headline inflation has been declining in the past three consecutive months, and has come down to 4.7 per cent from 7.3 per cent in February.
The rupee has depreciated by over 12 per cent since the beginning of the fiscal. It has slid heavily since May 20, ever since an announcement was made by the US Federal Reserve that it might pull back its liquidity-infusing bond repurchases as the domestic employment situation and the economy improved.
The rupee touched a life-time low of Rs 61.21 to a dollar earlier on Wednesday, forcing the central bank and capital markets regulator SEBI to take unconventional measures to arrest the slide.
The rupee has recovered in the last two days after the measures taken by RBI and SEBI.
