India’s monetary policy committee (MPC) is unlikely to raise interest rates based on a narrowing interest rate differential with the U.S., but a rebound in inflation could change this, according to three external members of the RBI’s MPC. Despite being perceived as less hawkish than internal members, all three agree that sustained inflation could prompt rate hikes. India’s MPC has raised key rates by 250 basis points since May 2022, but remained steady in April and June, insisting that the pause wasn’t a pivot and that rates would be raised if necessary. All members feel that the real interest rate in the economy is high and could restrict growth, but it will have to be looked at from the perspective of the future inflation trajectory. While the annual retail inflation dropped to a more than two-year low of 4.25% in May, all three members indicated that upside risks to inflation remain, particularly due to a bad monsoon.
External Rate Panel Members Claim India’s Inflation Dictates Rate Hikes, Not the Fed
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