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.
Beijing’s continued provocations in the Taiwan Strait reveal its intention to unilaterally change the “status quo” in the area, the US Department of State said on Saturday, calling for a peaceful resolution to cross-strait issues. The Coast Guard Administration (CGA) reported that four China Coast Guard patrol vessels entered restricted and prohibited waters near Kinmen County on Friday and again on Saturday. A State Department spokesperson said that Washington was aware of the incidents, and urged all parties to exercise restraint and refrain from unilaterally changing the “status quo.” “Maintaining peace and stability across the Taiwan Strait is in line with our [the
EXTENDED RANGE: Hsiung Sheng missiles, 100 of which might be deployed by the end of the year, could reach Chinese command posts and airport runways, a source said A NT$16.9 billion (US$534.93 million) project to upgrade the military’s missile defense systems would be completed this year, allowing the deployment of at least 100 long-range Hsiung Sheng missiles and providing more deterrence against China, military sources said on Saturday. Hsiung Sheng missiles are an extended-range version of the Hsiung Feng IIE (HF-2E) surface-to-surface cruise missile, and are believed to have a range of up to 1,200km, which would allow them to hit targets well inside China. They went into mass production in 2022, the sources said. The project is part of a special budget for the Ministry of National Defense aimed at
READY TO WORK: Taiwan is eager to cooperate and is hopeful that like-minded states will continue to advocate for its inclusion in regional organizations, Lai said Maintaining the “status quo” in the Taiwan Strait, and peace and stability in the Indo-Pacific region must be a top priority, president-elect William Lai (賴清德) said yesterday after meeting with a delegation of US academics. Leaders of the G7, US President Joe Biden and other international heads of state have voiced concerns about the situation in the Strait, as stability in the region is necessary for a safe, peaceful and prosperous world, Lai said. The vice president, who is to be inaugurated in May, welcomed the delegation and thanked them for their support for Taiwan and issues concerning the Strait. The international community
COOPERATION: Two crewmembers from a Chinese fishing boat that sank off Kinmen were rescued, two were found dead and another two were still missing at press time The Coast Guard Administration (CGA) was yesterday working with Chinese rescuers to find two missing crewmembers from a Chinese fishing boat that sank southwest of Kinmen County yesterday, killing two crew. The joint operation managed to rescue two of the boat’s six crewmembers, but two were already dead when they were pulled from the water, the agency said in a statement. Rescuers are still searching for two others from the Min Long Yu 61222, a boat registered in China’s Fujian Province that capsized and sank 1.03 nautical miles (1.9km) southwest of Dongding Island (東碇), it added. CGA Director-General Chou Mei-wu (周美伍) told a