India RBI Seen Holding Rates as Inflation Risks Stay in Focus

Skip to Content News Archives Economy Energy Oil & Gas Renewables Electric Vehicles Mining Commodities Agriculture Real Estate Mortgages Mortgage Rates Finance Banking Insurance Fintech Cryptocurrency Work Wealth Smart Money Wealth Management Investor Personal Finance Family Finance Retirement Taxes High Net Worth FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials More Innovation Information Technology FP500 Podcasts Small Business Lives Told Tails Told Shopping Financial Post Store Obituaries Place a Notice Advertising Advertising With Us Advertising Solutions Postmedia Ad Manager Sponsorship Requests Classifieds Place a Classifieds ad Working Profile Settings My Subscriptions Saved Articles My Offers Newsletters Customer Service FAQ News Economy Energy Mining Real Estate Finance Work Wealth Investor FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials This advertisement has not loaded yet, but your article continues below.HomePMN BusinessIndia RBI Seen Holding Rates as Inflation Risks Stay in FocusThe Reserve Bank of India is expected to keep interest rates unchanged on Wednesday as policymakers assess whether higher energy costs from the renewed Middle East conflict spill over into broader inflation before raising borrowing costs.Author of the article:Anup Roy and Subhadip Sircar You can save this article by registering for free here. Or sign-in if you have an account.m)7qw9v}prctem09[vul}{7m_media_dl_2.png Bloomberg(Bloomberg) — The Reserve Bank of India is expected to keep interest rates unchanged on Wednesday as policymakers assess whether higher energy costs from the renewed Middle East conflict spill over into broader inflation before raising borrowing costs.THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLYSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.SUBSCRIBE TO UNLOCK MORE ARTICLESSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.REGISTER / SIGN IN TO UNLOCK MORE ARTICLESCreate an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.THIS ARTICLE IS FREE TO READ REGISTER TO UNLOCK.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountThe central bank’s six-member Monetary Policy Committee, headed by Governor Sanjay Malhotra, is expected to leave the repurchase rate unchanged at 5.25%, according to all but one of 30 economists surveyed by Bloomberg. Policymakers are also likely to retain a neutral stance as inflation remains well within the RBI’s 2%-6% tolerance band.The RBI targets inflation at the 4% midpoint of the tolerance band, and Malhotra has said policymakers would respond only if price pressures become more broad-based rather than driven by temporary supply shocks.Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try again“We think the best thing to do amid this volatility is nothing,” Barclays Plc economist Aastha Gudwani wrote in a note. Policymakers face an environment that is “no less challenging” than in June, supporting the case for the MPC to remain on pause, she said.India’s retail inflation rate breached the RBI’s target for the first time in 17 months, accelerating to 4.38% in June. Signs are emerging that price pressures may prove more persistent. The country’s largest consumer companies are preparing a second straight quarter of price increases on products ranging from toothpaste to tires and paint, adding to signs that higher input costs are being passed on to consumers.The finance ministry last week issued its first official warning that inflation was broadening beyond food, saying higher fuel costs and unfavorable weather were feeding through to a wider range of consumer prices.Financial markets are fully pricing in a hold this week after the governor sought to temper expectations of any policy tightening in the near-term. Interest-rate swaps imply about 75 to 100 basis points of future rate hikes, although markets have pushed expectations for most of those increases into next year, according to Tata Asset Management.With a hold all but priced in, investors will look to Malhotra for signals on what could prompt future rate hikes and how the RBI plans to manage the rupee after easing rules to attract foreign-currency inflows. Many economists, including Santanu Sengupta of Goldman Sachs Group Inc. continue to expect the RBI to begin raising rates in October.Malhotra is scheduled to announce the policy decision in a televised address at 10 a.m. in Mumbai. Here’s what analysts will be watching:Most economists expect the RBI to leave its inflation forecast unchanged at 5.1% for the fiscal year ending March 2027. Growth is also expected to remain at 6.6%. Those projections, published in June, were based on an assumption that crude oil would average about $95 a barrel.This advertisement has not loaded yet.This advertisement has not loaded yet, but your article continues below.While Brent crude briefly touched $100 a barrel amid renewed Middle East tensions, it has traded below the RBI’s assumption for much of the period. As a result, some economists, including those at Citigroup Inc. and Goldman Sachs Group Inc., see scope for the central bank to lower its inflation forecast.The rupee has rebounded as much as 3% from its record low in May after the RBI and the government introduced measures to attract foreign capital. Over $40 billion has flowed into India since the central bank eased rules on foreign-currency deposits and overseas borrowing.State Bank of India estimates the measures could attract $80 billion to $85 billion by December this year. Most analysts expect the RBI to absorb much of those inflows into its foreign-exchange reserves, limiting further appreciation of the rupee while supporting domestic liquidity.Yields on Indian government bonds have edged higher since June as renewed geopolitical tensions revived inflation worries, although shorter-term bonds have continued to outperform on expectations the banking system will remain flush with cash.“The market remains cautious about geopolitical developments in the Middle East and is therefore likely to favor the shorter end of the curve over longer-dated bonds,” said Sameer Karyatt, executive director and head of trading at DBS Bank India. The bank expects the benchmark 10-year government bond yield to remain above 6.70%. It closed at 6.83% on Monday. —With assistance from Shinjini Datta.Notice for the Postmedia NetworkThis website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more about cookies here. 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