US Fed Reserve pause; Geopolitical risks to force RBI status quo as economists are Bullish on inflows: Experts
By Saurav Mukherjee, Mumbai, July 30
The Reserve Bank of India's Monetary Policy Committee is widely expected to maintain status quo on key policy rates in its upcoming meeting on August 5, while keeping a watchful eye on global central banks move and sticky inflation, according to leading economists speaking exclusively toNews on Thursday.
Assessing the impact of the US Federal Reserve's hawkish pause and Bank of Japan's policy stance, Ragini Sinha, Chief Economist at CareEdge, emphasized that domestic resilience outweighs foreign capital risks.
"Given the very fluid macroeconomic environment, we expect RBI to maintain status quo in the upcoming meeting," Sinha stated, noting that rate cuts are off the table as domestic indicators remain healthy.
She added that robust debt inflows and USD 70+ billion in projected capital flows will cushion the rupee: "RBI is going to focus on inflation control and not use the monetary policy tool for currency management... there is going to be abundant capital flows to take care of the currency."
Echoing the pause expectation, Dipti Deshpande, Principal Economist at Crisil, pointed out that central banks globally are exercising extreme caution due to recurring West Asia conflicts and supply-side pressures.
"Given a rising inflation situation in India, even if it is from the supply side, we don't expect the RBI to cut any rates," Deshpande said.
She highlighted emerging price risks from input cost pass-throughs and monsoons, adding: "In the forthcoming policy, they will remain vigilant, they will wait to assess the impact, and they will underline the risks to inflation."
On exports, she warned that weaker global demand and protectionism pose short-term headwinds.
Analyzing market liquidity and interest rate dynamics, Shrikant Chouhan, Head of Equity Research at Kotak Securities, observed that the Fed's pause is largely priced into Indian equities.
"On an immediate basis, at least, they are not going to consider increasing interest rates... but in the month of September, definitely, they will start focusing on it very closely," Chouhan explained, cautioning that crude sustaining above USD 85 per barrel remains a global concern.
On the domestic rate outlook, he concluded: "Broadly, we are of the view that we are not expecting any immediate interest rate hike in the near future... USD 105 is the level where we need to be very, very careful in this market."
The experts collectively expect the central bank to rely on active liquidity management and targeted policy communication until inflation risks subside later in the fiscal year.
— ANI
Reader Comments
I wish the RBI would give some relief to home loan borrowers though. Repayments are killing us. But I get it, inflation needs to be controlled first. Geopolitical risks are real - look at what's happening in West Asia. Status quo is probably the safest bet.
Good call by RBI. We saw what happened when US Fed kept hiking rates - emerging markets got hammered. India's been smart to keep our policy independent. But I'm worried about crude above $85, our import bill will balloon. Need to watch that closely.
As someone who invests in Indian bonds, I'm actually relieved by the status quo. The INR has been stable and inflows are strong. RBI's credibility is high. But I do worry about the monsoon impact on food inflation - that could change the calculus quickly.
Honestly, the RBI has been doing a stellar job navigating all these global uncertainties. But shouldn't we also talk about domestic consumption? If rates stay high, small businesses like mine will keep struggling. Balance is key, and I hope they consider growth too.
Three cheers for Ragini Sinha and Dipti Deshpande for their clear-headed analysis! Finally, economists who understand that India isn't a leaf blown by every global wind. But I'm cautiously optimistic - let's see how the monsoon plays out. Fingers crossed! 🤞
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