Money in India
India - Money
Reserve Bank of India hikes rates again in September
On 30 September, the Reserve Bank of India (RBI) hiked the repo rate by 50 basis points to 5.90%. Consequently, it also hiked its standing deposit facility rate and marginal standing facility rate by 50 basis points each, to 5.65% and 6.15% respectively. Five board members voted for the hike, with one voting for a 35 basis points increase.
The Bank said that the hike was needed to preempt second-round effects—where higher prices lead to higher wages, sparking a vicious cycle—and ensure that inflation converges to the Bank’s 2.0–6.0% target in the medium-run. The Bank pointed out upside risks to the inflation outlook, including a weaker rupee versus the dollar, food prices, geopolitical tensions and supply disruptions. The Bank expects inflation to remain above target until January–March 2023. The recent weakening of the rupee also prompted the Bank to state it was prepared to intervene in the FX market should it prove necessary. Meanwhile, the Bank highlighted a more healthy economic outlook as providing room for the hike: It expects a boost to agricultural activity from recent rainfall and a rebound in services as the economy reopens from Covid-19.
The Bank did not provide explicit forward guidance. However, it stated it would continue to “remain focused on the withdrawal of accommodation” to ensure inflation returns to target “going forward”, and as a result further hikes are likely ahead. The Bank asserted that risks to the inflation outlook appeared balanced; however, unexpected spikes or drops in inflation—such as due to a swing in commodity prices—could prompt the Bank to change course. A sharper-than-expected economic slowdown or rebound could also affect the speed of policy tightening.
The next monetary policy meeting is scheduled to take place on 5–7 December.
Analysts at Nomura commented on the outlook:
“We continue to think the RBI will be guided primarily by local considerations, but our house view of a higher US terminal fed funds rate (5.25-5.50% by March 2023) and a weak currency (USD/INR at 85 by November) does add some upside risks to our forecast. Therefore, we are raising our terminal repo rate forecast to 6.50% (from 6.15% earlier), with a 35bp hike in December and a final 25bp hike in February.”
FocusEconomics panelists forecast the repurchase rate to end FY 2022 at 5.94% and FY 2023 at 6.07%.
India - Money Data
|Money (annual variation in %)||11.5||6.7||21.8||14.3||10.3|
5 years of economic forecasts for more than 30 economic indicators.
India Money Chart
Source: Reserve Bank of India and FocusEconomics calculations.
|Bond Yield||6.50||-0.04 %||Jan 01|
|Exchange Rate||71.23||-0.09 %||Jan 01|
Get a sample report showing our regional, country and commodities data and analysis.
Request a Trial
Start working with the reports used by the world’s major financial institutions, multinational enterprises & government agencies now. Click on the button below to get started.
November 15, 2022
Merchandise exports shrank 16.6% annually in October, contrasting September’s 4.8% increase.
November 14, 2022
Inflation came in at 6.8% in October, down from September’s 7.4%.
November 11, 2022
Industrial output increased 3.1% compared to the same month a year earlier in September, which contrasted August's 0.7% decrease.
November 3, 2022
The S&P Global Composite Purchasing Managers' Index (PMI) came in at 55.5 in October, up from September's 55.1.
October 14, 2022
Merchandise exports increased 4.8% on an annual basis in September, following August’s 1.6% increase.