RBI may raise rates in December; US Fed likely to pause this month
Reserve Bank of India to tighten monetary policy any further, given a steady decline in core inflation, but Adarsh Sinha, co-head of Asia FX and Rates Strategy at Bank of America, tells Bhaskar Dutta that the central bank may raise rates again in December to signal its seriousness to bring inflation back to its 4% target. Edited excerpts:
What is your reading on interest rates both in India and te US?
On the Reserve Bank's likely actions ahead, we do have a rate hike pencilled in for December. It's not a consensus view.
Our view is premised on how serious the Reserve Bank is about returning inflation back to 4%. Right now, for FY25, the RBI's forecast still projects inflation above 4%. If they really want to send a strong signal to the market that they want to get it into the midpoint, then that implies another rate hike.
On the US side, we expect a pause in September.
Officially, we have a rate hike for November which is the last rate hike we have pencilled in but it's 50-50. Everyone will be watching the dot-plot that we'll get at the September Fed meeting to see whether the median still has that additional rate hike baked in. Our view is that the Fed will start cutting in the middle of next year and the RBI will start its easing cycle in the second half of the year.
Are you optimistic about bond index inclusion being announced in coming weeks?
Expectations are rising of it happening in a couple of weeks — we have had some discussions about it.
It's not so much because Indian policymakers are requesting it. But it is quite clear that there's a push from investors as well as the index provider itself to include India. The idea is simple — you want your index to be representative and diverse.
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