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INDIA: Stocks Extend Rally Following RBI Rate Decision

INDIA
  • The RBI kept rates on hold at 6.50%, which was widely expected by the market. The central bank also maintained its bias on the withdrawal of accommodation. On both counts the RBI MPC voted 4 to 2, which was a shift from the prior meeting where the vote count was 5-1.
  • This may be construed as a dovish outcome, although the tone of RBI Governor Das's press conference doesn't suggest a near term policy shift is likely. Notably the 2025 FY growth forecast was revised up to 7.2% from the prior 7.0%. On inflation the 4.5% forecast for the current financial year was retained.
  • The upward revision to the growth outlook has provided a tailwind to Indian equities. The Nifty and Sensex indices are both around 1.6% higher on the day, extending the recovery from Tuesday’s lows. Similar optimism is reflected in the rupee, which is 0.1% firmer against the greenback today.
  • Meanwhile, Bloomberg report that India’s foreign exchange reserves increased to a record high of $651.5bn last week as foreigners pile into its bonds ahead of their inclusion into JP Morgan’s EM debt index on June 28.
  • Citing Bank of America strategists, Bloomberg also report that Indian equity funds attracted the biggest weekly inflows on record as investors bought into the selloff earlier in the week.
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