India’s Reserve Bank (RBI) kept its key policy rates unchanged today, but also put the markets on notice to expect monetary tightening soon. Worries about the recovery are diminishing fast and the RBI’s inflation forecast has been raised. We expect that a series of rate hikes will start no later than January 2010. The bonds sell-off should continue but the rupee will likely rise further. Indian stocks will probably climb higher too, as the recovery and corporate profits stay strong.
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