Is the Reserve Bank of India the only central bank in the world that is truly an inflation hawk? The recent interest rate move is pretty strong evidence.
The RBI stunned global markets by boosting the repo rate 50 basis points to a full 8%, surprising every economist who covers Mumbai.
Indian stocks sold off as much as 2% on the news before recovering a bit into the close, while the rupee edged up.
The accompanying statement heaped comment on hawkish comment: “stronger monetary policy actions are required” in the absence of government action to get cheaper food into Indians’ kitchens.
Otherwise, the RBI continued, the 8% GDP growth that has drawn many traders to India could indeed become a hostage to rate policy.
“Questions about the ability of the economy to sustain the current growth rate without significant inflationary pressures come to to the fore.”
The rate hike, the 11th increase in less than 18 months, was a full 25 basis points more than what was expected, and the market did not like the surprise.
Moves like this might just shake the inflation bug if global demand for hard assets and macro risks settle down.
At this point, short-term interest rates in India are finally back above short-term inflation forecasts of 7%.
If so, India — and funds such as INDY, INP and PIN — become interesting trades in the second half.
Take a look at INDY, the newest large-cap ETF on the India block: