India holds repo rates at 6.5% in surprise move to pause
India’s central bank has held its repurchase rate at 6.5%, marking the first time since April 2022, when the Reserve Bank of India started its monetary tightening cycle.
The repurchase rate, or repo rate, is the rate at which the Reserve Bank of India lends money to commercial banks or financial institutions in India against government securities.
This was expected only by a minority of economists, with only 13 out of 60 economists polled by Reuters forecasting a pause in rates. The remainder all expected a hike of 25 basis points.
The Indian rupee weakened 0.15% to 82.04 against the U.S. dollar following the announcement.
The worst is over for inflation in India, says Nomura
The worst is over for inflation in India, and both core and headline inflation are expected to fall in the coming months, said Sonal Varma, Nomura’s chief economist for India and Asia outside of Japan.
The financial services firm’s forecast right now for both headline and core is in the 5.5 to 6% range, Varma said. And going forward between April and March 2024, it expects inflation “will be closer to 5% rather than even greater than 5.5%.”
“The key to monitor for [inflation in] India is food and monsoon related risks, but other than that, I think things are getting back in check and the worst of inflation is behind us.”
Nomura also forecasts the Reserve Bank of India could hit pause on raising interest rates, instead of hiking by 25 basis points like most analysts polled by Reuters expect.
India’s central bank has hiked interest rates by 250 basis points since May 2022, and “plus liquidity tightening, the cumulative effect of hike is actually more than 300 basis points already,” Varma told CNBC’s Street Signs Asia on Thursday.
— Charmaine Jacob
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