In a recent interview with Moneycontrol, Morgan Stanley stated that they’ve been predicting that the Fed won’t implement further rate hikes, which aligns with their expectations
The rupee opened marginally lower against the dollar tracking losses in its Asian peers on November 7.
At 9.10am, the home currency was trading at 83.24 to a dollar, down 0.03 percent from its previous close of 83.22.
In a recent interview with Moneycontrol, Morgan Stanley stated that they’ve been predicting that the Fed won’t implement further rate hikes, which aligns with their expectations. The market viewed it as a more dovish outcome than anticipated. It believes the first rate cut may occur in about six months, with the Fed closely monitoring the unemployment rate and monthly job additions. Currently, the inflation outlook aligns with the Fed’s desired levels.
The government has recently extended the free food programme for five years, which was initially set to end in December 2023. Analysts had expected a six-month extension. This highlights the challenge of withdrawing populist policies, especially before the elections, with limited short-term macro implications. The programme costs Rs2 trillion or 0.7 percent of the GDP annually. However, increased spending on rural employment guarantees may affect the FY24 fiscal deficit target of 5.9 percent of the GDP, according to analysts.
Over the medium term, the government may lose revenue from subsidised food sales (0.05 percent of the GDP annually), and as procurement costs rise, the food subsidy bill will also inflate. While there’s a genuine need for subsidised grains for lower-income households, there are risks associated with competitive populism through free schemes, analysts said.