India's central bank is expected to leave interest rates on hold this week as fears that the country's fast-growing economy is overheating begin to recede, analysts said.
The bank's aggressive monetary tightening has slowed credit and industrial growth and reduced inflation, they said, suggesting that the rate-hiking cycle that started in late 2004 could be ending.
"The unchanged interest rates will likely suggest the Reserve Bank of India's comfort in the current domestic macro-economic scenario," said Manika Premsingh, an economist at the brokerage Edelweiss Capital in Mumbai.
The bank may instead move to reduce cash in the banking system to cope with hefty capital inflows at its quarterly policy meeting tomorrow, analysts said.
The RBI has pushed its benchmark repo rate to a four-year peak of 7.75 percent in its drive to tame inflation, raising the repo, its key short term lending rate, five times between June last year and March this year.
India's inflation accelerated to 4.41 percent for the week ended July 14 from 4.27 percent the previous week, data on Friday showed.
But the figure is well below the bank's ceiling of 5 percent for the fiscal year to March next year and sharply down from a two-year high of nearly seven percent earlier this year, which prompted the central bank to warn that the economy was possibly overheating.
"I expect the RBI to adopt a `wait and watch' message -- with a cautiously watchful attitude to inflation," said Deepak Lalwani, director at London stockbroker Astaire and Partners Ltd.
India's economy grew by 9.4 percent in the last financial year and the central bank has forecast growth of 8.5 percent this year.
Monetary tightening has led to an easing of credit growth by a third to 24 percent after it touched 33 percent in June last year.
Year-on-year industrial production growth fell to 11.1 percent in May from 14.5 percent in March while auto sales fell by 4.4 percent last month.
Freight rail traffic has slowed to a 22-month low of 3.9 percent while export growth has decelerated to a 44-month low of six percent. Business confidence has fallen sharply, mainly due to higher borrowing costs.
"We expect no further policy rate hikes as growth indicators are already pointing towards a significant further deceleration," said Morgan Stanley economist Chetan Ahya.
Analysts also said leaving rates on hold could act as a signal to commercial banks to start reducing lending rates, with a possible first central bank rate cut coming as early as the fourth quarter.
"Assuming the current growth decelerating trend is maintained, we see a 40 percent probability of a policy rate cut in the quarter ended December 2007," Ahya said in a research note.
However, some analysts said they expected the bank to take further action to reduce liquidity amid a surplus of cash that could allow inflation to re-emerge.
Foreign money has been pouring into India's booming stock market amid record highs.
A sharp rise in the bank's foreign currency reserves suggests it has been buying dollars and selling rupees to curb the Indian currency's jump against the US unit, injecting rupee funds into the banking system in the process.
"A hike in the cash reserve ratio [CRR] is a possibility," said India's Development Credit Bank's K. Harihar, referring to the amount of cash commercial banks must hold on deposit with the central bank.
ROLLER-COASTER RIDE: More than five earthquakes ranging from magnitude 4.4 to 5.5 on the Richter scale shook eastern Taiwan in rapid succession yesterday afternoon Back-to-back weather fronts are forecast to hit Taiwan this week, resulting in rain across the nation in the coming days, the Central Weather Administration said yesterday, as it also warned residents in mountainous regions to be wary of landslides and rockfalls. As the first front approached, sporadic rainfall began in central and northern parts of Taiwan yesterday, the agency said, adding that rain is forecast to intensify in those regions today, while brief showers would also affect other parts of the nation. A second weather system is forecast to arrive on Thursday, bringing additional rain to the whole nation until Sunday, it
CONDITIONAL: The PRC imposes secret requirements that the funding it provides cannot be spent in states with diplomatic relations with Taiwan, Emma Reilly said China has been bribing UN officials to obtain “special benefits” and to block funding from countries that have diplomatic ties with Taiwan, a former UN employee told the British House of Commons on Tuesday. At a House of Commons Foreign Affairs Committee hearing into “international relations within the multilateral system,” former Office of the UN High Commissioner for Human Rights (OHCHR) employee Emma Reilly said in a written statement that “Beijing paid bribes to the two successive Presidents of the [UN] General Assembly” during the two-year negotiation of the Sustainable Development Goals. Another way China exercises influence within the UN Secretariat is
CHINA REACTS: The patrol and reconnaissance plane ‘transited the Taiwan Strait in international airspace,’ the 7th Fleet said, while Taipei said it saw nothing unusual The US 7th Fleet yesterday said that a US Navy P-8A Poseidon flew through the Taiwan Strait, a day after US and Chinese defense heads held their first talks since November 2022 in an effort to reduce regional tensions. The patrol and reconnaissance plane “transited the Taiwan Strait in international airspace,” the 7th Fleet said in a news release. “By operating within the Taiwan Strait in accordance with international law, the United States upholds the navigational rights and freedoms of all nations.” In a separate statement, the Ministry of National Defense said that it monitored nearby waters and airspace as the aircraft
Taiwan’s first drag queen to compete on the internationally acclaimed RuPaul’s Drag Race, Nymphia Wind (妮妃雅), was on Friday crowned the “Next Drag Superstar.” Dressed in a sparkling banana dress, Nymphia Wind swept onto the stage for the final, and stole the show. “Taiwan this is for you,” she said right after show host RuPaul announced her as the winner. “To those who feel like they don’t belong, just remember to live fearlessly and to live their truth,” she said on stage. One of the frontrunners for the past 15 episodes, the 28-year-old breezed through to the final after weeks of showcasing her unique