Can RBI go the Fed-way next week? A guide on investing in a high-interest rate regime
RBI) raises rates in India to mitigate the impact of Fed hikes on foreign capital inflow and the rupee's health. But experts still believe that the RBI may maintain a status quo on rates and keep the benchmark repo rate unchanged for the third time in a row in its upcoming bi-monthly policy review next week.
The Fed took a temporary pause in June to assess the impact of continuous hikes on the economy and the financial system of the US. It, however, resumed rate hikes since the economy still remains resilient and inflation has not fallen within its 2 per cent target level.
US inflation remains "well above" the central bank's target of two per cent, said Federal Reserve Chair Jerome Powell in a post-policy press conference, adding that it will take time to bring price increases back down. As Mint reported earlier, the Fed will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.
Read more: Fed meet outcome: 4 Key takeaways from US monetary policy While the RBI may stay on the pause mode on rate hikes, the possibility of a rate cut is feeble now. Deepak Jasani, Head of Retail Research at HDFC Securities pointed out that with the RBI keeping the repo rates unchanged at 6.5 per cent in its last two policies, the interest rate differential between India and the US has fallen to just 100 basis points.
Jasani does not expect India’s central bank to change interest rates or even stance in the next policy meeting scheduled during August 8-10, 2023. However, a marginal rise in the inflation forecast for Q3 and H2FY24 is likely given the upside risk due to the sharp price rise in vegetables and pulses.
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