Monetary Policy Committee of India

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[intro jingle] India's retail and wholesale inflation rose further in August, strengthening expectations of a policy rate hike by the Reserve Bank of India's Monetary Policy Committee next month.

Retail inflation increased to four point eight percent from four point four percent in July, while wholesale inflation edged up to nine point nine percent from nine point eight percent.

Food inflation accelerated due to weak monsoon conditions and higher prices of staples such as onion, garlic, and ginger.

In fact, inflation averaged about 2% during that time.

So during that time, following the monetary policy framework that has been set now in the RBI Act, the MPC, the Monetary Policy Committee, actually cut interest rates by 1.25% from 6.5% to 5.25%.

So far, so good.

That was well justified, at least the way the MPC framed it, given that inflation had come down dramatically, right? Now, it didn't stop there, however.

Beyond what the MPC did with respect to policy rates, the RBI intervened aggressively in the bond markets and in the banking liquidity markets to ensure that this monetary policy framework was transmitted into the larger interest rates of the economy and that therefore there was a chance to transmit these policy changes onto the larger borrowing market as well.

So specifically, the RBI bought about 8.8 lakh crores of bonds, and this is 5-year, 10-year, 15-year, 20-year bonds, during the course of April 25 to March 26.

This is a record intervention, Pooja, and you know that.

My simple proposition is interest rates, capital flows, and currency markets are deeply intertwined.

Yeah, someone who's just afraid, someone who just tells it like it is.

Anyway, very excited to say here in Jackson Hole, back with the perfect guest, uh, someone we've had on the podcast multiple times before, Peterson Institute president Adam Posen, also formerly a member of the, uh, Bank of England's Monetary Policy Committee.

So Adam, thank you so much for coming back on Odd Lots.

After that intro-

Now, Treasury Secretary Scott Bessent's bold intervention to stem that potentially damaging rise in US borrowing costs has some investors saying that the dollar will ultimately pay the price, according to a Bloomberg report, quoting an analyst saying that the dollar certainly is the biggest casualty, and that he sees Bessent as deliberately pushing down long-term real rates and signaling a tolerance for the weaker dollar to keep the economy afloat.

So how are these developments looking like through an India lens once again? Also, India's Monetary Policy Committee has put out fairly hawkish-sounding notes after the recent credit policy two weeks ago.

So what could all of this mean? I reached out to Umesh Sharma, chief investment officer, debt at the Wealth Company Mutual Fund, and I began by asking him to walk us through his reading of the going-ons in the United States debt markets.

markets.So yeah, it's a pretty significant number, and the pace at which it has risen, that itself gives a lot of cause for concern.

Right.

And let me come to now India, sort of India within.

We've seen now the notes of the Reserve Bank's Monetary Policy Committee, which seem to be now sounding a little hawkish and suggesting, which is a little different from the commentary or the tenor of the commentary we heard from the Reserve Bank itself two weeks ago.

So what's your sense?