Rate hikes remain a distant prospect

Policy rates are highly likely to be left unchanged at the conclusion of the RBI’s upcoming MPC meeting on Friday 8th October, particularly given the recent drop in inflation. The committee might announce further measures to drain liquidity from the banking sector, but these will probably not amount to anything more than marginal tweaks. The big picture is that policy will remain very accommodative for several months yet.
Shilan Shah Senior India Economist
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India Economics Weekly

Reforms on the back burner, mobile tariff hikes

With key state elections coming onto the horizon, we doubt that any contentious economic reforms will be implemented during the winter session of parliament, which kicks off next week. Meanwhile, the mobile tariff hikes announced by telecoms firms this week will add to inflationary pressure. But we don't think that will spring the RBI into immediate action.     Drop-In: Why is Asia sitting out the global inflation surge? 09:00 GMT/17:00 HKT, Thursday 2nd December https://event.on24.com/wcc/r/3546145/A9D34EF592141BEFCAC819ADB40359D5?partnerref=report Drop-In: India – How much scarring will the pandemic leave? 10:00 ET/15:00 GMT, Wednesday 1st December https://event.on24.com/wcc/r/3535749/63CC51718846E8FF3D871827AC84AF1E?partnerref=report

26 November 2021

India Chart Book

Backsliding on reforms?

The repeal this month of controversial reforms aimed at liberalising the agriculture sector is arguably the biggest political setback that the Modi government has faced since coming to power in 2014. And while the direct economic impact of abandoning those reforms is limited, the bigger concern is the signal that it sends about the prospects for other contentious reforms that could make a substantial difference to economic growth over the long term. Ahead of a major election early next year in Uttar Pradesh – India’s most populous state with the largest representation in the Rajya Sabha – the ruling BJP is now highly likely to shelve reforms on the labour market that would face stiff popular opposition. A poor performance from the BJP in that election may derail the reform agenda for even longer.

24 November 2021

India Economics Weekly

Sitharaman pleads, Das reassures

Finance Minister Nirmala Sitharaman this week made an impassioned plea for the private sector to ramp up investment to support the economic recovery, but we don’t think that firms will heed her call. Meanwhile, comments from RBI Governor Shaktikanta Das support our view that policy tightening will proceed very gradually and that rate hikes won’t come onto the agenda for several more months yet.

19 November 2021

More from Shilan Shah

Emerging Markets Economics Update

Lat Am leads the EM tightening cycle

Several EM central banks have raised interest rates in the past couple of months on the back of growing inflation concerns (including many in Latin America) and/or strong economic recoveries (parts of Central Europe, Korea). Hiking cycles look set to continue for a while longer, with Latin America likely to tighten most aggressively. Bucking the trend is much of Asia, where – with the exception of Korea – policy tightening still looks some way off.

23 September 2021

India Economics Update

Three points on banking sector liquidity

Measures by the Reserve Bank to drain banking sector liquidity have caught attention over the past few days. But with liquidity still abundant, interbank rates at the very bottom of the rate corridor and financial conditions exceptionally loose, these measures represent marginal tweaks rather than a tightening of policy.

14 September 2021

India Economics Weekly

Vaccine rollout accelerates, MSP hikes muted

India’s vaccine rollout has shifted into a higher gear over the past couple of weeks, but the slow start means that it would still take several months before a large majority of the population is fully vaccinated. Meanwhile, the annual Minimum Support Price increases for winter crops announced by the government this week are small and will only have a limited impact on both rural wage and food inflation.

10 September 2021
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