India’s central bank is poised to raise interest rates for the first time in nearly four years as rising inflation and a rupee near record lows force policymakers to shift gears. For markets, the importance of the policy meeting extends well beyond the rate call. The focus will also be on what more the RBI does to drain excess cash from the banking system.
It has been aggressively reducing liquidity after its recent program to attract foreign-currency deposits from overseas Indians brought in larger-than-expected inflows. The cash glut has kept overnight borrowing costs below the policy rate, making financial conditions looser than intended. Investors will also be watching the RBI’s commentary on the rupee, especially given the recent record weekly drop in foreign-exchange reserves.
Meanwhile, swap traders have even priced in another hike at the RBI’s next meeting, as we write below. In global markets, Asian shares are holding near a record after optimism over the earnings outlook propelled Wall Street benchmarks to fresh all-time highs on Tuesday. That could offer an early lift to the Nifty, which has risen in each of the past two sessions.
In today’s newsletter, we also write about: India’s swap market has fully priced in rate hikes at the RBI’s meetings today and in December as inflation is expected to climb closer to the upper end of the RBI’s 2%-6% tolerance band. For Wednesday’s decision, the swap curve implies overnight borrowing costs will rise by more than 25 basis points. That suggests traders see the RBI stepping up its liquidity withdrawal alongside a rate increase to strengthen monetary-policy transmission.
The pricing may also reflect a smaller chance that the RBI delivers a larger rate increase rather than a token quarter-percentage-point hike. A hike would put India alongside Asian peers that have already begun tightening and mark the first such move under Governor Sanjay Malhotra, who took office in December 2024 and oversaw a series of cuts last year. Malhotra will announce the decision at 10 am in Mumbai.
We’ll be covering the RBI decision closely. Catch our live blog on our India homepage. Pricey raw materials may squeeze staples firms’ margins: Dolat Demand for consumer staples is largely holding up even after companies raised prices earlier this year, according to Dolat Capital.
The bigger concern is costs, with raw-material inflation worsening and agricultural commodities also getting more expensive. The brokerage expects this to squeeze margins and weigh on earnings across the sector, even as sales growth remains healthy. The key things to watch now are festive-season demand, whether companies push through another round of price increases, and how volumes hold up once those hikes take effect.
Top picks: Marico and Nestle. Strong refining margins to boost oil & gas firms in 2Q: Yes Yes Securities expects refiners to have another strong quarter as tight global fuel supplies keep margins elevated. Strong profitability in diesel, gasoline and jet fuel should be enough to offset the impact of government levies and price caps, the brokerage says.
MRPL and Chennai Petroleum remain its preferred plays. Oil marketing companies should also report a solid quarter, Yes says. Refinery output remains steady, exports have rebounded sharply from a low base, and losses on LPG and retail fuel sales have eased.
So while refining is doing most of the heavy lifting, improving conditions in the fuel-marketing business should provide an additional boost to earnings. Cement firms struggling to raise prices: ICICI Securities The outlook for the cement sector remains uneven, according to ICICI Securities. Demand was healthy in the second quarter, but compan...
Source: Bloomberg Markets · Summarized by HeadlinesBriefing