Latest news with #SanjayMalhotra
Economic Times
3 days ago
- Business
- Economic Times
Hope is brightening for India's Goldilocks scenario
India's economy may be entering a Goldilocks phase with moderate growth and controlled inflation India's economy is showing signs of entering what economists often call a 'Goldilocks' phase -- neither too hot nor too cold -- marked by moderate, sustainable growth coupled with subdued inflation. The term "Goldilocks economy" is taken from the children's story 'Goldilocks and the Three Bears', in which Goldilocks tries three bowls of porridge, finding one too hot, one too cold, and one just right from which she eats it all. In economics, it describes an ideal state where the economy is neither too hot nor too cold, a steady economic growth that prevents downturn but not so much growth that inflation rises too high. The Reserve Bank of India (RBI), along with the central government, appears increasingly confident in steering the economy toward this delicate balance through calibrated monetary and fiscal actions. Recent developments, including comments from RBI Governor Sanjay Malhotra on July 15 and continued downward surprises in inflation data, suggest that India's Goldilocks scenario could be brightening. Retail inflation in June 2025 came in at just 2.1%, far below the RBI's earlier full-year projection of 3.7%. The average inflation for the April-June quarter stood at 2.7%, again undershooting the RBI's estimate of 2.9%. If current trends continue, July inflation could dip below 2%, and full-year inflation may settle close to 3%, significantly beneath the RBI's comfort band midpoint of 4%.This unexpected disinflation, largely driven by easing food prices, stable energy costs, and improving supply chains, strengthens the case for further monetary easing. RBI governor Sanjay Malhotra has said the central bank may consider cutting rates if both inflation and growth continue to soften, indicating that inflation could fall below the full-year forecast of 3.7 per cent. The monetary policy committee's neutral stance, he said, provides room to respond as conditions evolve. "If inflation and growth both trend lower, it could justify a policy rate cut," Malhotra said in an interview to CNBC TV18 yesterday. "But it depends on how the data develops. We are still in the process of updating our projections." Importantly, the Monetary Policy Committee's (MPC) neutral stance gives it the room to remain data-driven and agile in responding to evolving macroeconomic conditions. The RBI has already made two consecutive rate cuts, including a surprise 50 basis points cut in June. While market expectations had tilted toward a pause in the upcoming August policy review, the new inflation numbers may compel the MPC to economists, including Kunal Kundu of Societe Generale, believe that the RBI now has ample justification for two more 25 basis point cuts, which would bring the repo rate to 5.0%, a level that could both sustain demand and preserve financial stability. Such a stance aligns well with the RBI's updated objective: supporting growth without compromising on inflation Sen Gupta, Chief Economist, IDFC First Bank, Mumbai, said, "The moderation in inflation is led by a decline in food inflation. Core inflation remains range-bound at 4.5%. The outlook for inflation remains favourable with strong start to Kharif sowing. Meanwhile, daily prices indicate moderation in vegetables prices month-on-month in July. We continue to expect CPI inflation to average at 3% with downside risk. This is below RBI estimate of 3.7% in FY26. There is space for one more 25bps cut in October or December." Garima Kapoor, Economist, Institutional Equities, Elara Securities, Mumbai, said, "We expect full year CPI inflation to remain below the RBI's full-year estimate of 3.7%, and hence do not rule out the possibility of another rate cut post the end of monsoon."Radhika Rao, Senior Economist, DBS Bank, Singapore, said, "June inflation rose by the slowest pace in six years, in line with our forecast at 2.1% year over year vs 2.8% the month before. Despite the sequential rise in perishables, especially vegetables, the broad food basket remained on a disinflationary path led by cereals and pulses, keeping headline inflation in check. The weak June inflation reading will feed into expectations that the RBI MPC could warm up to further cuts in this cycle." India's GDP growth remained steady at 6.5% in FY2024-25, and the RBI projects a similar trajectory for the current fiscal year. This resilience is noteworthy, especially when set against a backdrop of global uncertainty, including lingering trade tensions, geopolitical volatility and subdued external demand. The June RBI bulletin acknowledged these risks, citing the precarious global environment, ongoing supply-side fragilities, and the risk of fresh geopolitical shocks. Yet, India's macro fundamentals -- strong domestic demand, moderate fiscal deficit and a relatively stable external position -- provide a firm cushion. The Ministry of Finance, in its May economic review, while cautioning about external vulnerabilities, struck a tone of cautious optimism: 'These could be nervous but exciting times for the Indian economy.'One key opportunity on the horizon is the potential India-US trade agreement, which could become a significant tailwind for Indian exports. In an environment where global trade has been marred by uncertainty and protectionism, a bilateral deal with the world's largest economy could unlock market access, investment flows, and technology positive domestic signals, Indian policymakers remain appropriately cautious. The RBI's emphasis on flexibility and data-dependence is crucial, given that global conditions remain volatile. Any sudden surge in oil prices, a flare-up in geopolitical tensions, or reversal of global capital flows could derail progress. The reference by the finance ministry to the need to "ride the tide" signals the importance of nimble policymaking, not just in monetary terms but also via targeted fiscal interventions, trade strategy and regulatory reforms. India's continued emphasis on supply-side improvements, from logistics and energy to skilling and MSME support, will be vital to strengthening the Goldilocks stars seem to be aligning for India. Falling inflation, stable growth, a proactive central bank, and possible India-US trade deal as well as other trade agreements, all suggest that the country is moving closer to an optimal policy equilibrium. The key now lies in execution, ensuring external risks are managed deftly and reform momentum is not lost. If India plays its cards right, this Goldilocks phase could serve as a launchpad for a sustained, inclusive and stable economic expansion, positioning it as one of the few large economies able to navigate an increasingly turbulent global landscape with confidence and poise. (With agency inputs)
Economic Times
3 days ago
- Business
- Economic Times
Malhotra's surprise rate cut sparks big expectations, but RBI's limits are showing
Agencies Monetary policy is a spectator sport. It wasn't always. Once upon a time, the actions of the central bank only electrified dealing rooms and jumpy traders. Today, they stir the hopes and ruffle the plans of homemakers, school teachers, shopkeepers and pensioners who react like never before when interest rates change. Household debts are well over 40% of GDP, up from about 30% a decade ago. Homes bought with borrowed money are the most longed-for asset after gold. With more people trusting the stock market to lift their fortunes as secured fixed-benefit pensions fade away and a high tax claws away meagre returns from FDs, RBI faces a vocal and burgeoning constituency. A faceless multitude, anticipating that life won't get any tougher, absorbs live TV commentaries, text messages from banks and brokers, and the rise and fall of stocks that follow policy announcements. It can overwhelm a central banker already dealing with nudges from GoI and unrealistic expectations from corporates. As governments have become less reliable, expectations from monetary authorities—often perceived to be more powerful than they are—have soared. Like in the days after the global meltdown, central banks have regained some of their lost ground in recent years by giving out forward guidance and handholding markets since Covid. But while they are expected to deliver, sometimes the unachievable, they have a bewildering job in a world that is more unpredictable and even threatening to alter the economic order that generations never questioned. In such a world, a central banker, particularly someone who is yet to fully grasp the lay of the land, is tempted to experiment, make a quick difference, and thus walk into a spot, leaving markets confused and everyone guessing what he would do next. That, many believe, is where Sanjay Malhotra finds himself now. As the new governor, Malhotra wanted to leave his mark. In June, he surprised markets with a half-point rate cut (against the widely expected quarter-point) coupled with a reduction in the reserve ratio, which released liquidity by letting banks park less cash with the RBI. He reminded many of Shaktikanta Das who, less than a year after joining, took the unorthodox step of lowering the benchmark interest rate by 35 basis points, a departure from the convention of changing rates by either 25 or 50 points. More significantly, Malhotra changed the policy 'stance' from 'accommodative' to 'neutral'. A stance in monetary policy is somewhat like the 'outlook' in a sovereign rating. Roughly put, the market interprets 'neutral' as either a hike or cut in the next policy, compared with either a cut or status quo under an accommodative stance. For Malhotra, 'neutral' was possibly a hint that there would be no cut in August, and perhaps a way to keep the doors open to a slim chance of a hike if tariffs or crude prices hardened. But since June, inflation has fallen a little more than expected. And, with Malhotra having said that RBI would be 'data dependent', the obvious question to crop up is: shouldn't he cut rates in August? With early festivals, when usually loans take off, shouldn't RBI make the most of the space created by softer inflation? RBI may prefer banks and borrowers to absorb the earlier actions, which could take 3 to 6 months to play out, before cutting again. But would that risk missing out on an opportunity to boost demand? Are lower rates the real trigger for borrowers? And should central banks become more light-footed and flexible with shorter pauses, reacting as and when surprises are thrown at them? There are no easy answers, though perhaps few would have raised questions had RBI let its stance remain 'accommodative' in June. Interest rate actions are transmitted through bank loans and bond prices, which haven't fully responded to the June measures. Loan demand is yet to pick up, and banks have parked idle funds, for which they could not find enough borrowers, with with the central bank mopping up unused liquidity, the interbank rate, a key money market indicator, hasn't dipped beyond a point. Having taken the uncommon step in June, there's only so much the central bank can do. The unfolding story is a reminder that GoI, businesses and consumers must temper expectations from RBI, which, in turn, should not shy away from spelling out its limitations in a world of mercurial presidents, climate change and a looming battle of tariffs and currencies. Financial markets must realise that the central bank's forward guidance, which they have become so used to since the pandemic years, won't last forever. And, like everything else, monetary policy, too, can change. Elevate your knowledge and leadership skills at a cost cheaper than your daily tea. What's keeping real retail investors out of the Nvidia rally If data is the new oil, are data centres the smokestacks of the digital age? The hybrid vs. EV rivalry: Why Maruti and Mahindra pull in different directions. What's best? Instagram and YouTube make billions off creators. Should they pay up for their mental health? Trent trips on the ramp. Is it still worth the splurge or time to change brands? 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Mint
4 days ago
- Business
- Mint
Indias forex reserves dip $3.06 bn to $696.67 bn, second straight weekly decline
Mumbai (Maharashtra) [India], July 20 (ANI): India's foreign exchange reserves fell by USD 3.06 billion to USD 696.67 billion for the week ending July 11, marking the second straight week of decline, according to the official data released by the Reserve Bank of India (RBI). In the previous reporting week of July 4, the country's forex reserves witnessed a slip of USD 3.049 billion to USD 699.736 billion. In the week ending July 11, foreign currency assets, which are the major constituent of the forex reserves, fell USD 2.477 billion to USD 588.81 billion, possibly becoming the major reason for the fall in the forex reserves. The Gold reserves, another major component of the forex, again witnessed a sharp fall of USD 498 million to USD 84.348 billion. The country's Special Drawing Rights (SDRs) with the global financial body, the International Monetary Fund (IMF), saw a dip of USD 66 million to USD 18.802 billion during the reporting week of July 11, according to the RBI data. The Reserve Position in the IMF also decreased by USD 24 million, according to the data. Central banks worldwide are increasingly accumulating safe-haven gold in their foreign exchange reserves kitty, and India is no exception. The share of gold maintained by the Reserve Bank of India (RBI) in its foreign exchange reserves has almost doubled since 2021, till recently. In 2023, India added around USD 58 billion to its foreign exchange reserves, contrasting with a cumulative decline of USD 71 billion in 2022. In 2024, the reserves rose by a little over USD 20 billion, touching an all-time high of USD 704.885 billion at the end of September 2024. India's foreign exchange reserves (Forex) are sufficient to meet 11 months of the country's imports and about 96 per cent of external debt, said Governor Sanjay Malhotra while announcing the outcome of the Monetary Policy Committee (MPC) decisions. The RBI governor expressed confidence, stating that India's external sector is resilient and key external sector vulnerability indicators are improving. Foreign exchange reserves, or FX reserves, are assets held by a nation's central bank or monetary authority, primarily in reserve currencies such as the US Dollar, with smaller portions in the Euro, Japanese Yen, and Pound Sterling. The RBI often intervenes by managing liquidity, including selling dollars, to prevent steep Rupee depreciation. The RBI strategically buys dollars when the Rupee is strong and sells when it weakens. (ANI)
Time of India
4 days ago
- Business
- Time of India
Forex kitty update: Reserves drop $3.06 billion to $696.67 billion; second weekly decline in a row
India's foreign exchange reserves fell by $3.06 billion to $696.67 billion for the week ended July 11, marking the second consecutive weekly decline, according to data released by the Reserve Bank of India (RBI). The forex kitty had previously decreased by $3.049 billion to $699.736 billion in the week ending July 4. For the week ending July 11, the foreign currency assets, a primary component of forex reserves, reduced by $2.477 billion to $588.81 billion, contributing significantly to the overall decline. The Gold reserves experienced a considerable reduction of $498 million, settling at $84.348 billion. During the reporting week of July 11, the country's Special Drawing Rights (SDRs) with the IMF decreased by $66 million to $18.802 billion, according to RBI data. The data also showed a reduction of $24 million in the Reserve Position at the IMF. Central banks globally are increasing their holdings of gold as a secure asset in their foreign exchange reserves, including India. The RBI's gold proportion within its foreign exchange reserves has seen a twofold increase since 2021 until recent times. India enhanced its foreign exchange reserves by approximately $58 billion in 2023, contrasting with a total reduction of $71 billion in 2022. by Taboola by Taboola Sponsored Links Sponsored Links Promoted Links Promoted Links You May Like An engineer reveals: One simple trick to get internet without a subscription Techno Mag Learn More Undo The reserves increased by over $20 billion in 2024, achieving a record high of $704.885 billion by the end of September 2024. India's foreign exchange reserves can cover 11 months of imports and approximately 96 per cent of external debt, according to Governor Sanjay Malhotra's statement during the Monetary Policy Committee (MPC) meeting announcement. The governor conveyed optimism about India's external sector, noting its resilience and the improvement in key external sector vulnerability indicators. Foreign exchange reserves, managed by a country's central bank, mainly consist of reserve currencies—primarily the US Dollar, along with smaller amounts of the Euro, Japanese Yen, and Pound Sterling. (With ANI inputs) Stay informed with the latest business news, updates on bank holidays and public holidays . AI Masterclass for Students. Upskill Young Ones Today!– Join Now
India.com
4 days ago
- Business
- India.com
Indias Forex Reserves Dip From $3.06 Bn To $696.67 Bn, Second Straight Weekly Decline
Mumbai: India's foreign exchange reserves fell by USD 3.06 billion to USD 696.67 billion for the week ending July 11, marking the second consecutive week of decline, according to official data released by the Reserve Bank of India (RBI). In the previous reporting week ending July 4, the country's forex reserves had slipped by USD 3.049 billion to USD 699.736 billion. In the week ending July 11, foreign currency assets—the major component of forex reserves—fell by USD 2.477 billion to USD 588.81 billion, likely emerging as the primary reason behind the decline in total reserves. Gold reserves, another key component, also saw a sharp fall of USD 498 million, bringing them down to USD 84.348 billion. The country's Special Drawing Rights (SDRs) with the International Monetary Fund (IMF) declined by USD 66 million to USD 18.802 billion during the reporting week, as per the RBI data. The Reserve Position in the IMF also decreased by USD 24 million. Central banks worldwide are increasingly accumulating safe-haven gold in their foreign exchange reserves, and India is no exception. The share of gold maintained by the RBI in its forex reserves has nearly doubled since 2021. In 2023, India added around USD 58 billion to its forex reserves, in contrast to a cumulative decline of USD 71 billion in 2022. In 2024, the reserves rose by a little over USD 20 billion, reaching an all-time high of USD 704.885 billion at the end of September. India's foreign exchange reserves are currently sufficient to cover 11 months of the country's imports and about 96 per cent of its external debt, said Governor Sanjay Malhotra while announcing the outcome of the Monetary Policy Committee (MPC) decisions. The RBI Governor expressed confidence, stating that India's external sector remains resilient, with key vulnerability indicators showing improvement. Foreign exchange reserves, or FX reserves, are assets held by a nation's central bank or monetary authority, primarily in reserve currencies such as the US Dollar, with smaller portions in the Euro, Japanese Yen, and Pound Sterling. The RBI often intervenes in the forex market to manage liquidity—selling dollars to prevent steep rupee depreciation and buying dollars when the rupee is strong.
