Fears of RBI’s off-cycle action due to volatility

MUMBAI: Some bankers believe that the RBI may undertake off-cycle monetary action if volatility in the foreign exchange market persists. “While rate action is not warranted given moderating inflationary pressures, the gap between policy rates in India and those in the United States is narrowing. fed announces a strong rise this month ahead of RBI’s August policy, there could be a new exit,” said a banker.
The RBI sold dollars from its foreign exchange reserves to ensure stability in the foreign exchange market. But he may decide to hold on to his forex as new demand for dollars may emerge in the coming months when some external borrowings will need to be repaid. The Monetary Authority of Singapore tightened monetary policy on Thursday, ahead of an expected hike by the Federal Reserve later this month. Other central banks, including New Zealand and Canada, also raised interest rates. “Will the RBI follow other Asian central banks and offer an off-cycle rate hike of 50 basis points next week? The likelihood is very low as we are not too far away from the scheduled August 2-4 meeting, but we also cannot completely rule it out, given the RBI’s track record of surprises in the past with its rate actions,” said Deutsche Bank economist Kaushik Das. said in a report last week. So far, the RBI is estimated to have sold nearly $50 billion of its reserves in a bid to stem outflows. This caused foreign exchange reserves to fall from a high of $642 billion in September 2021 to $580 billion.

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