Latest news with #retail inflation
Yahoo
3 days ago
- Business
- Yahoo
Resurgence of India rate-cut wagers revives foreign investor interest in bonds
By Dharamraj Dhutia MUMBAI (Reuters) -Foreign appetite for Indian government bonds is back, with inflows picking up steadily over the last month, as investors gauge fresh expectations of a rate cut by the Reserve Bank of India as early as August. The RBI cut rates by a larger-than-expected 50 basis points in June and changed the stance to "neutral", prompting investors to bet on a prolonged pause. But a sharp drop in June retail inflation has some investors reassessing the likelihood of another rate cut. The RBI could implement a modest 25 basis point cut in August if inflation remains subdued and growth concerns persist, said Singapore-based Manish Bhargava, CEO of Straits Investment Management, adding that bond yields are attractive at current levels. Over the last one month, foreign investors have net bought 129 billion rupees ($1.5 billion) of Indian bonds linked to global indexes after selling more than 330 billion rupees in the first two-and-a-half months of the financial year that started on April 1, clearing house data showed. Analysts said concerns on the growth front are also likely to prompt the central bank to lower rates further. With recent high-frequency data disappointing and indicating the possibility of a further slowdown in growth, "there is potential for more support from the RBI further down the line," said London-based Giulia Pellegrini, lead portfolio manager, emerging market debt at AllianzGI. India's overall economic fundamentals remain solid, keeping the country on investors' radar, she said. A wider gap between interest rates in India and the U.S. would add to the appeal of Indian debt, investors said. That's why a Federal Reserve rate cut could act as a positive catalyst for Indian bonds, as they have historically helped local currency debt markets, said Nigel Foo, Singapore-based head of Asian fixed income at First Sentier Investors. However, current Indian bond yields are lower than where they were in the past at similar policy rate levels, and so are relatively unattractive, he added. The 10-year U.S. yield was around 4.35%, with the Fed expected to cut rates by at least 50 bps in 2025. The Indian 10-year benchmark bond yield was at 6.30%. "India's local debt story remains very compelling on both FX and rates," said Jean‑Charles Sambor, head of emerging markets debt at TT International Asset Management in London, who expects bond yields to decline through this year and next, and finds the middle of the yield curve attractive. ($1 = 86.2470 Indian rupees)
Times of Oman
17-07-2025
- Business
- Times of Oman
India's retail inflation headed below 2% RBI tolerance band in July: Nomura
New Delhi: Retail inflation in India, which has been on a declining trend providing further respite to common people, is expected to head below RBI's 2 per cent lower tolerance band, this July, according to Nomura. Continuing its downward trend, retail inflation in India hit a new over six-year low in June, at 2.1 per cent. "Headline inflation moderated below market expectations...," multinational investment and brokerage firm Nomura said in a report this week. A sharp decline in prices was reported in a number of food categories, offsetting the seasonal uptick in vegetable prices. Food and beverages inflation fell in June, with a sequential drop in prices of pulses, cereals, and spices, while higher prices were observed for eggs, meat, and fish, edible oils, and vegetables; the latter in line with seasonal trends. Against this backdrop of moderating retail inflation in India, Nomura recently lowered its 2025-26 headline inflation forecast to 2.8 per cent, from 3.3 per cent, well below the RBI's forecast of 3.7 per cent. "While the hurdle for a rate cut at the next meeting in August appears high, we expect 25 basis point cuts in each of the October and December meetings to a terminal rate of 5.00 per cent," the Nomura report read. "We also expect banking system liquidity to be kept in a surplus for effective monetary policy transmission," it added. Daily data for the first 13 days of July suggest headline inflation is tracking even lower in July, at around 1.5 per cent, Nomura asserted. The inflation rate is within the Reserve Bank of India's (RBI) manageable range of 2-6 per cent. Retail inflation last breached the Reserve Bank of India's 6 per cent upper tolerance level in October 2024. Since then, it has been in the 2-6 per cent range, which the RBI considers manageable. Food prices were a concern for Indian policymakers, who wished to sustain retail inflation around 4 per cent. Inflation has been a concern for many countries, including advanced economies, but India has largely managed to steer its inflation trajectory well. The RBI held its benchmark repo rate steady at 6.5 per cent for the eleventh consecutive time, before cutting it first time in about five years in February 2025. Analysts expect inflation to remain under control, allowing the RBI to focus on supporting economic growth. The recent 50 basis points repo cut was quite an indication. The inflation outlook for the year 2025-26 has been recently revised downwards from RBI's earlier forecast of 4 per cent to 3.7 per cent. "We expect credit growth to remain subdued and see downside risks to the RBI's 2025-26 forecasts for GDP growth (6.5 per cent) and inflation (3.7 per cent)," the Nomura report read. Separately, Wholesale inflation (WPI) in India turned negative in June at (-) 0.13 per cent as against 0.39 per cent in May. In April 2023, the wholesale inflation last went into negative territory and continued for seven straight months. Similarly, in the initial days of COVID-19, in July 2020, too, the WPI was reported to be negative.
Khaleej Times
15-07-2025
- Business
- Khaleej Times
India's cooling inflation prompts rate cut calls, raises concerns over weakening domestic demand
te hA slump in India's retail inflation to six-year lows and a likely drop to a record low in July is prompting calls for at least one more interest rate cut this year, with many analysts saying the sharp disinflation is also a sign of weakening demand. The drop in June headline inflation is accompanied by low core inflation, which, excluding gold, silver and fuel prices, remains below 4%, suggesting softer underlying consumption which may need more support from monetary policy, analysts say. The Reserve Bank of India cut interest rates by a deeper-than-expected 50 basis points (bps) at its last policy review in June but changed its stance to 'neutral', signalling limited room to cut rates further. After Monday's surprise inflation reading, however, analysts and markets are reflecting the rising possibility of more easing. Swap rates moved lower on Monday and Tuesday, suggesting bets on at least one more rate reduction ahead. Radhika Rao, an economist with DBS Bank, expects another 50 bps of cuts in the current easing cycle. "Considering the softness in incoming activity indicators (e.g. production, credit growth, auto sales), and below-projected inflation in the first half of fiscal 2026, the RBI monetary policy committee will be inclined to ease rates further," Rao said without giving a specific timeframe. The RBI's next policy review is in early August, though analysts think it will wait for more data and clarity on the global trade war front before likely moving in September or October. Demand weakness is slowly starting to show up in indicators across sectors like autos and real estate. Car sales to dealers fell to a 18-month low in June, data showed on Tuesday. Meanwhile, home sales in India's top seven cities fell 20% in the April-June quarter, real estate consultancy firm Anarock said in a report last month. "High frequency indicators continue to show moderation in urban consumption and tentative private capex," said Gaura Sen Gupta, chief economist at IDFC First Bank, who expects one more rate cut from the central bank in October or December. Rate hints India's central bank expects inflation for the full year to be below 3.7%, Governor Sanjay Malhotra told CNBC TV-18 earlier in the day, adding that the monetary policy committee (MPC) will look at the inflation outlook, and not just current data, while deciding on further rate moves. In an interview with the Business Standard following the June policy decision, he had said room may open up if inflation runs lower than its projections. "With the RBI policy stance being at 'neutral', it is difficult to think of a deep rate cut cycle from here," said Samiran Chakraborty, economist at Citi. "But we think the MPC will utilise the space that has opened because of the softer-than-expected CPI prints." In the April-June quarter, inflation averaged 2.7%, below the RBI's forecast of 2.9%. Citi expects July's inflation rate to fall to a record low of 1.1% and average inflation in the financial year 2025-26 of 3.2%, the lowest since 1990. Urban demand lagging Urban consumption in India began to slow last year, which economists attribute to weak wage growth and depleted household savings. Rural demand showed a recovery after a strong monsoon last year, but the pick-up has been inconsistent. Sales of two-wheel vehicles, one of the proxies for rural demand, saw a modest 4.7% increase in June but fell 12.5% month-on-month. Private investment has remained sluggish as well. Capacity utilisation has been stuck at around 75–76% for over a year — below the threshold that typically triggers new capital expenditures, economists said. Madhavi Arora, an economist with Emkay Global, said investment is unlikely to pick up immediately amid global trade uncertainties and a murky domestic demand outlook. "Broadly, the India growth story is stuck at around 6.0%-6.5% kind of range with the story being of missing private economic agents in India," she added. Government capex has picked up in the first quarter of fiscal 2026. But with the government already having announced tax cuts in the budget, most economists said the ability to provide further stimulus is limited from the fiscal side. "The space for fiscal policy to further support growth is limited with downside risk to tax collection and nominal GDP growth. Hence, monetary policy will have to continue to do the heavy lifting to support growth," IDFC's Sen Gupta said.
