RBI keeps key interest rate unchanged

Reserve Bank Of India kept interest rate unchanged at 6.25 percent  as  expected, while lowering projections for inflation .Its decision to leave the repo rate approx 6 year low after the monetary policy committee meeting and  reverse repo rate was also left unchanged at 6.00 percent.

The RBI cut banks' statutory liquidity ratio  by 50 bps to 20 percent of total deposits.Its projection for consumer inflation to 2-3.5 percent in April to September, down from 4.5 percent earlier, and to 3.5-4.5 percent in October to March, down from 5 percent earlier.

The change in forecast comes after consumer prices rose in April at their lowest annual rate in at least five years, slowing to 2.99 percent from 3.89 percent in March, well below the RBI's target of 4.0 percent.

The RBI said the risks to its inflation were "evenly balanced," a twist in its language from its statement in April when it cited "upside risks" to inflation.

"The decision of the Monetary Policy Committee is consistent with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent .

Several factors are pointing to more congenial inflation, including the likelihood of above-average monsoon rains, falling commodity prices, and a 5 percent rally in the rupee that has made imports cheaper.

India's economy grew a slower than expected 6.1 percent in the January-March quarter, its slowest pace in more than 2 years and down from 7 percent in the previous quarter, slowdown was largely due to the government's shocking decision to remove large denomination banknotes from circulation to combat rampant tax avoidance.

As a result, the RBI adjusted its projection for growth value-added, a measure of growth it prefers, to 7.3 percent in the year to March 2018, down from its previous projection of 7.4 percent, with "risks evenly balanced".

 

US Stock Futures Down as Investors Avoid Risk

U.S. stock index were a bit lower as investors avoid risk ahead of British elections and FBI Director James Comey's much-expected testimony before Congress.

Comey plans to talk about conversations in which President  Trump pressured him to drop his investigation into Mike Flynn. Flynn was fired for failing to disclose conversations with Russian officials.

British Prime Minister Theresa May's lead over the opposition Labour Party ahead of the general election  has narrowed to just 1% point, according to a poll conducted on Friday and Saturday before the latest attacks in London.

Oil prices fell further below  , concerns that a diplomatic rift between Qatar and several Arab states, including Saudi Arabia, could undermine efforts by OPEC to tighten the market.

Wall Street slipped on Monday as a drop in Apple partly offset gains in energy and financial stocks, some of the market's worst-performing sectors so far .

Still, stocks continue to levitate around record levels, helped by a strong first-quarter corporate earnings season.

Investors are also keeping an eye on economic data after services sector activity slowed in May and worker productivity remained unchanged in the first quarter, suggesting limited scope for faster economic growth.

The Dollar Hike Against the Yen

The dollar edged up against the yen  ahead of U.S. jobs data.With the mood on the global stock markets broadly buoyant, the commodity bloc of currencies led by the Australian and Canadian dollar were all around 0.2 percent higher.

Sterling was down 0.2 percent but still looking stable, around a cent above this week’s lows against the dollar and half a penny off Wednesday's 2-1/2 month low against the euro.

The dollar hit 111.680 yen , in early trade in Asia before slipping back to 111.590, a 0.2 percent gain on the day. It was around 0.1 percent weaker at $1.1225 per euro.

The past fortnight has been the worst in over a year for the dollar bill against the euro and the basket of currencies used to measure its broader strength, a reflection of shakier U.S. economic data and concerns over the Trump's administration's ability to deliver a substantial boost to growth.

It has been rallying off and on for the best part of two years on the assumption that U.S. interest rates would continue to rise while those in Japan and Europe stayed below zero.

Yet while markets have fully priced in another Fed hike in two weeks, expectations for the rest of the year are now minimal.

The dollar modest gains against other major currencies

The dollar gains against other major currencies as market participants observe the release of  U.S. economic reports later in the day and highly predicted jobs data.

The dollar regained on Thursday but gains were expected to remain limited between ongoing fears investigations into President  Trump's ties with Russia could hold his administration's progress on promised stimulus measures.

The Trump administration is under investigation by the FBI Investigation and several congressional panels over alleged Russian meddling in the 2016 presidential election and potential collusion with the Trump campaign.

The pound remained vulnerable after the latest poll showed that Theresa May's Conservative Party is only 3 percentage points in front of the opposition Labour Party ahead of the June 8 election.