constantly trying to tame high inflationCentral banks, globally, are on a rate hike spree. India is no different. But when compared with central banks in other major Asian emerging market economies (EMEs), the Reserve Bank of India (RBI) comes out as the most aggressive in raising rates, even with many of its peers. has not yet started its rate hike cycle, showed an analysis by Motilal Oswal Financial Services Ltd. Note that India’s economic infrastructure is similar across many EMEs.
The cumulative increase of 130 basis points (bps) in the effective policy rate – that is, the fixed deposit facility rate and the repo rate hike of 90 bps – is the highest and fastest by the RBI in the last three months, the analysis showed. One basis point is 0.01%.
Central banks in some Asian economies such as Indonesia and Thailand have not yet raised rates, while the quantum of rate hikes in Malaysia and the Philippines has been lower than in India.
Against this background, the domestic brokerage house is of the view that the RBI has been unduly aggressive in its monetary policy normalisation. Investors will remember that at the height of the COVID-19 pandemic, global central banks slashed interest rates.
“either in domestic economic fundamentals (in the shape of a very strong GDP growth recovery and/or very high inflation) or fear of a severe disruption in financial markets (in the form of currency depreciation or a sharp jump in bond yields) or a combination of both.” The combination can hedge such strong monetary tightness,” added Motilal Oswal’s July 11 report. GDP is short for GDP.
Meanwhile, prices of other commodities like palm oil, soybean, petroleum coke and cotton have started falling. Still, economists expect the RBI to continue raising interest rates until domestic retail inflation calms down meaningfully.