India's Surprise Rate Hike Spurs Aggressive Tightening Bets
Comment of the Day

May 06 2022

Commentary by Eoin Treacy

India's Surprise Rate Hike Spurs Aggressive Tightening Bets

This article from Bloomberg may be of interest to subscribers. Here is a section:

The Reserve Bank of India stunned markets Wednesday with a 40-basis point rate increase and a move to suck out billions from the banking system. That was a remarkable U-turn from February, when it announced an ultra-dovish policy, highlighting a relaxed stance toward inflationary pressures at home and U.S. tightening abroad.

“We believe the rate hike is a belated acknowledgment of the inflation risks and that policy has been behind the curve,” Nomura analysts Sonal Varma, Aurodeep Nandi and Nathan Sribalasundaram wrote in a note.

Yields on the benchmark 10-year bond jumped as much as 30 basis points on Wednesday to 7.42%, the highest since 2019, while the shorter 4-year yield saw a nearly 50 basis point jump. Yields extended gains on Thursday. 

Eoin Treacy's view

Emerging market central banks have much more direct experience of the damage high inflation can do. They are usually alert to inflationary pressures and tend to implement remedial action quickly. Brazil hiking from 2% to 12.75% in little more than a year is a good example of that. That also helps to highlight just how out of step the RBI has been. The Repo rate was stock at 4% for nearly two years before this week’s hike.

Click HERE to subscribe to Fuller Treacy Money Back to top