RBI unlikely to use interest rates to defend rupee: Kotak Securities

Kotak Securities expert Anindya Banerjee states the RBI is unlikely to hike interest rates to defend the rupee amid the Strait of Hormuz closure. He notes speculative pressure is low and oil prices are stable, presenting an opportunity for India.

RBI Unlikely to Use Interest Rates to Defend Rupee

The Reserve Bank of India (RBI) is unlikely to use interest rates to defend the rupee despite the ongoing global energy shock triggered by the closure of the Strait of Hormuz, according to Anindya Banerjee, Vice President and Head of Commodity and Currency Research at Kotak Securities.

Speaking to ANI, Banerjee said there is no need for aggressive monetary policy action as speculative pressure on the currency remains limited. "Using interest rate as a tool is not appropriate for India because we don't have a speculative attack. RBI has choked all channels of speculation... So, I don't see a situation where RBI will use the interest rate tool to tackle the currency," he said.

Impact of Hormuz Closure on Oil Supply

His comments come amid concerns over the impact of the Strait of Hormuz closure on global energy markets. Banerjee said the disruption has removed a significant volume of crude oil from global supplies. "We lost around 10 million, 10 to 12 million barrels a day of crude oil because of the Hormuz closure, adjusting for all bypass and everything... But the good news is that the prices are not reacting to any bullish trigger as of now," he noted.

Stable Prices and Opportunity for India

According to Banerjee, oil prices have remained relatively stable because Gulf producers are using alternative export routes and lowering premiums on crude shipments. "Whatever crude is flowing through the bypass pipelines of Saudi Arabia and also Fujairah, it is being offered at a lower price, means the premiums in which those used to trade to Brent, they have been cut. So, which basically means... that the Gulf producers can use the bypass infrastructure to sell crude at a lower premium to Brent," he explained.

He added that the changing market dynamics could benefit large crude importers such as India and China. "For consumers like India or China, it is an opportunity also to procure the crude at a price which is lower than the international market... [because] the current market prices is not where the physical market is trading," Banerjee said.

Medium-Term Outlook

Expressing confidence in India's medium-term outlook, Banerjee described the current rally in oil prices as temporary and driven by supply disruptions. "This current oil shock or energy shock which has happened... is an artificial bull run... The day that Hormuz is opened up, this bull market is gone... Beyond 12 months, it is that kicker of the debt incentive for the FPIs which creates massive inflows," he said. (ANI)

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