RBI Expected to Raise Rates Amid Inflation Pressures

The Reserve Bank of India's (RBI) August monetary policy was not a surprise, as the central bank kept the policy repo rate unchanged at 5.25 per cent.

RBI Governor Sanjay Malhotra voted to keep the policy rate unchanged and retain the neutral stance, but his statement in the MPC minutes hinted at potential rate hikes in the near future due to concerns over rising headline inflation and persistent risks from food, fuel, and input prices.

The global central banks have taken a broadly hawkish turn since August, with several major central banks raising policy rates to combat persistent inflation pressures, rising sovereign bond yields, and high fuel costs. The US Federal Reserve raised its federal funds rate to a target range of 3.75-4 per cent in September, while the Bank of Japan hiked its policy rate to 1.25 per cent.

In contrast, Brazil's central bank cut its policy rate by 25 bps to 13.75 per cent amid signs of an economic slowdown. However, despite a 125 bps of cuts since March, Brazil still has one of the highest real interest rates among major economies.