TIMES AHEAD: With lower inflation last week, it is expectated that the central bank would cut the interest rate in near term

Terror attacks are unlikely to adversely impact the sovereign ratings of India, if it is only an isolated case. The government's fiscal position and macro-economic programmes are on a strong wicket. However the investment climate in the country may be impacted in the short term.

With lower inflationary figures in the last week, there has been greater expectation from money market that the central bank would cut the interest rate in the near term.

"In the short term, there will be some uncertainty on investments into the country. But in the medium to long term, India would bounce back to be a safe investment destination, by the first quarter of next year," said Hemant Mishr, head of global markets, Standard Chartered Bank.
India's short term external debt of nearly $89 billion, of which $67 billion is maturing in the next nine months, will put pressure on the rupee as the demand for dollars will continue to be high in the near term according to economists.

“In the short term, we expect there will be a slowdown of tourist arrivals (particularly business travellers to India), and some negative impact on the foreign exchange and stock exchange markets, but such short-term effects will recede over time if there are no further attacks,” said S&P credit analyst Takahira Ogawa said in a release .
The Indian rupee continued to be under strain closing at Rs 50.28 to a dollar lower than Friday's close of Rs 50.09/12 to the greenback. During intra-day trade it had dipped to Rs 50.35 to a dollar, when the Reserve Bank of India (RBI) was seen intervening strongly. On Wednesday, before the terror siege, the rupee was trading at Rs 49.48/49 to a dollar.
“When terror strikes, the investment climate gets impacted due to uncertainties. But it is only an immediate and short term reaction. The impact of the global recession was already upon us. Quantum of safe haven investments into the US treasuries will continue for sometime. The possibility of a roll-over of credit being limited with the tightness in the global markets, the dollar will be in demand atleast till second quarter of 2009," says Abheek Barua, chief economist, HDFC Bank.
The one-month offshore non-deliverable forward contracts were quoting at 50.86/51.01 per dollar, weaker than the onshore spot rate and indicating a bearish near-term outlook."But the money markets were in almost the same mode as they were before the terrorist struck. The rupee continues to loose ground with dollar enjoying a safe haven status and widening trade deficit. The bond market rallied on the expectation that RBI may announce a 50 basis cut in the CRR and the repo cut," added Mishir.