RBI could keep rates higher for longer amid global and local risks
With global financial risks in the spotlight, the Reserve Bank of India is indicating a shift towards higher interest rates. Governor Sanjay Malhotra has highlighted emerging challenges, including significant global debt levels and surging asset prices. The rise in US treasury yields and crude oil costs suggests trials ahead for the Indian economy.
Mumbai: Financial risks are becoming more cross-border and interconnected, according to economists. This could influence the Reserve Bank of India's monetary policy decisions, with governor Sanjay Malhotra's speech at the Fifth Kautilya Economic Conclave providing a hawkish signal. Malhotra's remarks suggest rates may remain higher for longer due to global and domestic risks converging.
Madhavi Arora, chief economist at Emkay Global Financial Services, emphasizes that global financial conditions, especially the steady tightening in the US, will be the key driver of the RBI's policy reaction. The gap between the 10-year Indian yield and the 10-year US treasury yield has narrowed, reflecting rising global bond yields.
Malhotra highlighted emerging risks such as elevated global debt, stretched asset valuations, higher leverage, defaults, cyber risks, and AI-related challenges. Economists believe this speech has put doubts over a rate hike on Wednesday to rest, with a 50 to 75 basis point hike expected this cycle. Factors like higher crude oil prices, weaker dollar inflows, and domestic inflation pose additional challenges for the RBI.
Written by urgent.news from The Economic Times - Economy's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
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