Rupee Expected To Open Stronger

Data on Friday showed CPI extended its decline in January, consumer prices rose 4.1% Y/Y, compared with 4.6% in December, this is the lowest level for inflation in 16-months.

• The fall was driven by a decline in vegetable prices. Inflation in food and beverages overall eased to 2.67%, led by a 15.84% drop in vegetable prices against a decline of 10.41% in December. A strong base effect in vegetable prices is expected to keep food inflation low over the next six to nine month.
• Lower inflation means real yields have extended their rise, and also keeps yields in the 2%-6% band targeted by the RBI, after a sources piece intimated that inflation above 6% could lead the RBI to hike rates in the short/medium term.
• Industrial production data was also released, it showed factory output rose 1.0% in December compared to a 1.9% drop in the previous month.
• Forwards suggest a higher open for INR, 1-month USD/INR forwards have declined to 72.78 after opening around 72.90. USD/INR closed Friday at 72.75