Are RBI and Governor Shaktikanta Das taking monetary policy cues from US Federal Reserve, other central banks?

RBI is not signaling any pause and the commentary given is similar to the US Fed’s commentary.

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RBI is not signaling any pause and the commentary given is similar to the US Fed’s commentary.

The RBI Monetary Policy Committee raised the repo rate by 25 bps to 6.5% on Wednesday and added that since core inflation remains sticky, further policy action could be warranted. This led to a barrage of analysts and experts to draw comparisons between the US Federal Reserve, Bank of England and other central banks with the Reserve Bank of India.

The global markets closely watched US Federal Reserve Chair Jerome Powell’s speech on Tuesday. He said, “It may well be the case that we have to do more and raise rates more than is priced in.” Drawing parallels to the Fed commentary, Governor Das said, “further calibrated monetary policy action is warranted to keep inflation expectations anchored, break the persistence of core inflation and thereby strengthen the medium-term growth prospects.”

RBI commentary similar to US Fed

RBI is not signaling any pause and the commentary given is similar to the US Fed’s commentary, said Sandeep Yadav, Head – Fixed Income, DSP Mutual Fund, adding, “Domestic policy is still intertwined with the global central banks’ policies.” Many experts echoed similar sentiments. “The continued rate hikes by the Bank of England, the ECB and the U.S. Federal Reserves, and the implications of these in the foreign exchange markets, influenced the decision of the RBI,” said Sujan Hajra, Chief Economist and Executive Director, Anand Rathi.

External sector stability weighs

As inflation cools down globally, analysts said central banks will continue to reduce the pace of rate hikes, abating fears of a global recession if there is an absence of a soft landing from central banks across the world. Instead of the primary consideration of the RBI being price stability, the hike “appears to be guided more by the consideration of external sector stability”, said Rupa Rege Nitsure, Group Chief Economist, L&T Financial Holdings. The RBI is not alone in this approach, she added, stating that it “is in line with the approach adopted by many emerging market central banks.”

Global stance to influence domestic policy decisions

“Having front loaded most of the rate increases, incremental policy rate decisions will largely be data and global central bank stance related,” said Radhavi Deshpande, President & CIO, Kotak Life Insurance. However, some experts were opposed to the supposed rationale behind the rate hike. “India, while a part of the global system, has a very strong country story and that should be factored in by the regulator in their decision,” said Vivek Iyer, Partner and Leader, Grant Thornton Bharat.