The Reserve Bank of India keeps interest rates stable

As widely expected, the RBI decided to keep the Indian policy rate unchanged as part of its efforts to prevent cost of living inflation. Reserve Bank of India Governor Shaktikanta Das announced that the policy rate would be kept at 6.50%. This decision is in line with the RBI’s current strategy of gradually tightening monetary conditions by continuing the “unwinding of accommodation,” which refers to the reduction of measures implemented to support the economy over the previous period.

Economists had generally expected this outcome, which was in line with The Wall Street Journal's forecast. All ten experts surveyed by the publication anticipated that the RBI would maintain its current stance.

By maintaining the current interest rate, the Reserve Bank of India is showing caution in the face of inflationary pressures. This strategy aims to stabilise prices without disturbing economic momentum.

Despite global economic uncertainties, the RBI's consistent monetary policy stance demonstrates the central bank's careful stewardship of India's financial future.

Consumer Price Index for June

In June, India's consumer price index rose by 5.1%, which is a 5.1% year-on-year increase compared to last year. This figure was 0.35% higher than in May. The actual target of India's central bank is to keep inflation below 2%, and it can also fluctuate between 2% more and 2% less than the target. The continued rise in prices is expected to make the RBI cautious about cutting interest rates, especially in view of the country's robust economic development.

Although due to the war between Russia and Ukraine and inflationary pressures from the post-pandemic recovery, there were a series of rapid rate hikes totalling 2.5 percentage points between May 2022 and December 2023, the Reserve Bank of India did not decide to raise its interest rate above the current level.

Strong government spending on infrastructure and rising manufacturing and construction have demonstrated India's economic resilience. The economy grew 8.2% in the year ending in March. Despite this, rising prices remain a real pressure. As the central bank implements monetary policy, it should keep a close eye on measures to control inflation without triggering negative results.

India Economic Outlook: India's $5.19 Trillion Market

India's economic landscape is changing rapidly as the National Stock Exchange of India reaches a valuation of $5.19 trillion, making it the third largest stock exchange in the Asia-Pacific region.

As the most populous country in the world, India is now on the threshold of becoming the most comprehensive and resilient manufacturing sector, attracting the attention of global investors. This shift is driven by political factors between India and the US and India’s success with major companies. In addition, global supply chains are increasingly looking towards India. Major companies such as Apple supplier Foxconn and Micron technology are actively directing funds towards India, highlighting this significant shift.

Micron technology to design first high-tech semiconductor chip in India in 2025

These measures reflect the growing belief that India offers more than short-term opportunities, as it provides a long-term investment horizon with returns that exceed the cost of capital and has long-term potential.

From the point of view of international investment, India is not only an alternative, but also a very attractive place for investments. Growth is expected to continue over the next decades. One of the country's new positions in the world is to demonstrate that its economic potential is not about to disappear suddenly, but rather is on a stable development path that can be a decisive factor in global industry and finance.

The RBI's Bold Decision: The Rupee Exchange Rate

The Reserve Bank of India, in a groundbreaking move to stabilise the Indian rupeeThe US has carried out a strategic intervention. The rupee has been falling sharply and this intervention is aimed at stopping its devaluation. In the last three days, the rupee has hit record lows. On Tuesday, it was just $84 away from an emergency level.

The rupee's situation warranted this proactive measure as it was the worst performing currency in Asia over the past month, and the volatility created by transactions funded by the Chinese yuan has only added to the situation.

The Reserve Bank of India intervened in various market segments such as the spot market, futures and non-deliverable forward contracts. The central bank reportedly sold as much as $1.5 billion in the non-deliverable forward market the day before the spot market started operations. This crucial decision prevented the rupee from falling below the psychological level of 84.

The RBI has advised banks to “consider the size of existing positions as the risk limit” rather than ordering them to reduce their positions or providing them with detailed instructions on how to deal with non-deliverable forwards.

India manages food inflation rate and economic activity

India has been facing a very difficult situation in the food price sector, which is in distress. Food prices constitute a significant share of the consumption basket, exacerbating economic pressures in a context of significant income inequality.

Despite this, the IMF projects that India will be the leading economy by 2024. However, the country needs to distribute 800 million food grains for free, a huge task.

The Monetary Policy Committee (MPC) of the Reserve Bank of India has continued to hold interest rates steady in its first extension, which has been welcomed by the majority for the ninth time. Its main objective is to improve inflation control, price stability of goods and services and have a positive impact on economic growth.

Despite the current global economic uncertainties, India’s stable response to the situation is remarkable. Coupled with its higher economic shares, this presents a very compelling narrative of India’s growth. It also highlights India’s resilience on the global stage.