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India

Bullion bonds are back

In response to the surge in gold imports to meet demand for a hedge against inflation, the government is relaunching the Sovereign Gold Bond Scheme, first introduced in 2015. By making it more accessible to retail investors, the scheme should have some success, but the impact on the current account deficit is likely to be small.
Asia Drop-In (30th June, 09:00 BST/16:00 SGT): Are Asia’s central banks behind the curve? Can the Bank of Japan and People’s Bank of China continue to go against the grain? Find out in our special session on what global monetary tightening looks like in Asia. Register now.

24 June 2022

MPC minutes suggest more frontloading is in store

The minutes of the MPC’s June meeting – in which the repo rate was hiked by 50bps to 4.90% – show that combatting inflation remains the priority and suggest that tightening will continue to be frontloaded. Asia Drop-In (30th June, 09:00 BST/16:00 SGT): Are Asia’s central banks behind the curve? Can the Bank of Japan and People’s Bank of China continue to go against the grain? Find out in our special session on what global monetary tightening looks like in Asia. Register now.  

22 June 2022

FX intervention from a position of strength

The rupee has held up better than most EM currencies this month and the recent drop in FX reserves strongly indicates that this is in part because the RBI has once again ramped up its FX interventions. RBI Governor Shaktikanta Das has made clear that the central bank “will not allow a runaway kind of depreciation of the rupee at a rapid pace” and indeed, it still has lots of ammunition to continue intervening if the rupee comes under further pressure. After all, FX reserves remain plentiful at almost US$600bn (around ten months of import cover). This underpins our view that the rupee will continue to hold up well relative to other EM currencies, even as high commodity prices cause the current account deficit to widen. Asia Drop-In (30th June, 09:00 BST/16:00 SGT): Are Asia’s central banks behind the curve? Can the Bank of Japan and People’s Bank of China continue to go against the grain? Find out in our special session on what global monetary tightening looks like in Asia. Register now.  

22 June 2022
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Market turmoil tests RBI’s appetite for FX intervention

Although the rupee fell to a record low against the US dollar this week amid a broad-based sell-off in global financial markets, it held up better than most other EM currencies. That’s probably down to FX intervention from the RBI, and we expect the Reserve Bank to continue intervening to support the rupee if it comes under renewed downward pressure. World with Higher Rates - Drop-In (21st June, 10:00 ET/15:00 BST): Does monetary policy tightening automatically mean recession? Are EMs vulnerable? How will financial market returns be affected? Join our special 20-minute briefing to find out what higher rates mean for macro and markets. Register now

Wider trade deficit to persist

India’s goods trade deficit didn’t widen in the immediate aftermath of Russia’s invasion of Ukraine – rather counter-intuitively for a major commodity importer. But that has now started to happen, and a closer look at the data suggests the deficit may widen further in the coming months. World with Higher Rates - Drop-In (21st June, 10:00 ET/15:00 BST): Does monetary policy tightening automatically mean recession? Are EMs vulnerable? How will financial market returns be affected? Join our special 20-minute briefing to find out what higher rates mean for macro and markets. Register now

Wholesale Prices (May)

Indian wholesale price inflation climbed to another historic high in May. The rise in food prices in particular suggests that some of the upside risks to the inflation picture we have been flagging are materialising. And in general today’s data support our views that the fall in CPI inflation in May will be temporary and that the RBI will continue to frontload policy tightening.

Consumer Prices (May)

India’s consumer price inflation dropped back in May, but much of that was due to base effects. We expect inflation to resume rising from June, prompting the RBI to continue frontloading policy tightening.

Food inflation, new MSPs, RBI policy

The Reserve Bank stepped up the pace of tightening by hiking the repo rate by 50bps to 4.90% this week. It also upped its inflation forecasts substantially, primarily due to food inflation. We agree that food prices will drive headline CPI inflation higher over the coming months, which is why we expect the RBI to continue frontloading policy tightening.  

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