Reserve Bank of India

This sharp rise reflects a convergence of rising crude oil prices and tightened liquidity within the banking system.

The Reserve Bank of India faces a balancing act, as higher borrowing costs threaten fiscal plans for both central and state governments, potentially dampening investment momentum.

Economic data released on Wednesday added nuance to this narrative.

Industrial production growth slowed to 6.7% in September, marking a four-month low driven by a contraction in the mining sector due to monsoon disruptions.

But there's a good reason why people think this is a good idea, that it's the lowest cost loan in India for a person.

Because RBI gives a lot of leeway on housing loans.

But RBI doesn't differentiate between under construction and non-under construction.

And I think that's unfair because the idea that you should give a loan for housing because it's somehow good.

I think should be considered to a different extent where you don't have collateral.

By the end of it, nobody knew what was happening, but everybody knew what was happening, which was now the series of many movies saying you guys have packaged really bad stuff and made it look good by getting a triple A rating, but it isn't.

And it's happening even now.

In a lot of times, like I say, if you're calling an under-construction housing loan a housing loan and giving it a high credit rating because RBI does that, saying high credit rating is low.

Doing well, and I think we've got our hands full with this conversation as well.

So in our previous episode, we discussed the latest central bank action around the world and its rationale, India's inflation picture, RBI one time measures to garner external inflows and how all of this shaped our outlook.

So today, we're going to discuss the continuing significance of AI and geopolitics for markets, the next set of FX-related measures that the RBI rolled out recently, similarities and differences of India's macro setting now with 2013 when the taper tantrum happened, and as always, how this defines the macro and policy outlook.

So like I said, our hands are full, so let's get straight into it.

Maybe let's start with AI.

Now, let's pivot the conversation to India.

Right.

Could you take us through what transpired in the last month? We saw the RBI hike rates and implement several measures in the FX market.

In this episode, we'll be speaking with NDR's Chief Economist, Alejandro Grindahl, regarding inflation's impact on the global economy and monetary policy.

Alejandra, how has the Reserve Bank of India's recent shift to a hawkish stance impacted the country?

Hey, Brian, thanks for having me.

So the Reserve Bank of India, or we can call it RBI, raised its policy rate for the first time in nearly four years.

And they signaled a move toward what they call inflation containment.

So as a bit of background, India's CPI has held above the RBI's 4% target for a fourth consecutive month.

The intersection of federal finance and global commerce defines the economic pulse for this quarter.

Supply chain disruptions from global conflicts also risk feeding into domestic inflation, complicating monetary policy decisions for the Reserve Bank of India in the near future.

From there, we turn to corporate earnings.

China currently dominates the global supply chain for lithium-ion phosphate batteries, representing nearly 98% of cathode-active material production.

Investors watch if this digital giant repeats telecom dominance while expanding into asset management and lending through partnerships.

Currency markets presented a different picture today.

The Indian rupee slipped marginally, testing the tolerance of the Reserve Bank of India for measured depreciation amidst high oil prices and foreign equity outflows.

Traders are debating whether officials will continue spending billions to defend a specific number or allow a softer currency to boost export competitiveness.

So keeping that in mind, I think that's one key use case.

Second thing that we're starting to see is And I'm not necessarily saying this is replicating what's being done in Hong Kong, but the RBI has started doing a lot of POCs around tokenized government bonds and using the CBDC as the layer for payouts.

You can't, as you all are aware, you don't need a CBDC or tokenized money to facilitate transactions or payouts or pains when you are doing any RWA transaction.

You could connect it to a digital payment and that becomes off-chain, on-chain transactions.

They've started with some government bonds.

that can be transacted through CBDC.

For me, one of the things I do feel India should consider now is, India is actually now looking at it, today or tomorrow, RBI is hosting, actually today in an hour or so, RBI hosts these regular interactions with the industry.

Today, they're gonna be focusing on tokenized assets, right? Over the last six months, there has been a significant acceleration in the conversation around tokenizing real world assets, in particular property and land and et cetera, infrastructure projects with some governments, state governments have started pushing for, including Maharashtra, which is where Bombay is and one of the highest revenue generators of India.

US Treasury yields eased, with the 10-year down about 8 basis points to just under 5%.

Turning to India macros, the minutes of the RBI's October policy meeting that were out last week showed policymakers flagging broadening inflation pressures.

They indicated that rate cuts are unlikely in the near term, with future policy action limited to either a hike or a pause.

On the activity front, the index of core industries grew a strong 7.9% year-on-year in September, up from an upwardly revised 5.9% in August, led by iron ore, electricity and coal, while fertilizers, natural gas and crude oil output contracted.

IT was the only sector that ended the week on a positive note, up marginally by about 0.2%, holding onto previous week's sharp earnings-led rally.

On currency and bonds, the rupee was broadly flat over the week at around 94.9 against the dollar.

Indian bond yields continued to rise as RBI's measures to defend the rupee pointed to tighter liquidity conditions.

The RBI minutes for October reinforced expectations of further rate hikes and elevated crude prices added to inflation worries.