Reserve Bank of India (RBI) and Bank of Mexico (BOM) preview
2023-08-21
At the policy meeting in August, RBI and BOM may maintain policy interest rates unchanged for the third consecutive time.
Based on the price and economic trends in both countries, most people believe that there is no need to urgently lower interest rates at present.
On the 10th of this month, the Reserve Bank of India (RBI) and the Bank of Mexico (BOM) will announce the results of their financial policy decision-making meeting. In market forecasts, RBI's policy interest rate will remain at 6.50% and BOM's policy interest rate will remain at 11.25%, both of which are expected to remain unchanged for the third consecutive time. However, as the Central Bank of Brazil (BCB) hinted at the upcoming significant interest rate reduction cycle at the Monetary Policy Committee (COPOM) meeting on August 2nd, when to start cutting interest rates has become a highly concerning issue for two major emerging countries, India and Mexico.
The specific clues lie in prices and economic trends. In India, the Consumer Price Index (CPI) in June increased by 4.81% year-on-year, surpassing May's 4.31%. This is mainly due to the rise in food prices, which has once again sparked vigilance against inflation. Although still within the inflation target range set by RBI (2-6%), the impact of abnormal weather on prices needs further observation. In addition, according to the good economic index, there is currently no need to urgently cut interest rates to stimulate the economy. The Manufacturing Purchasing Managers' Index (PMI) released on July 1st and 3rd shows that the manufacturing index is 57.7, continuing the state of over 50 since July 2021, and the service industry index is 62.3, reaching the highest level since June 2010. RBI Bank has emphasized that 'maintaining policy interest rates unchanged does not necessarily mean a change in policy direction'.
Similar to RBI, the Bank of Mexico (BOM) also believes that there is some room for financial policy operations. The Consumer Price Index (CPI) in July increased by 4.79% year-on-year, while the core CPI (excluding food and energy) increased by 6.64% year-on-year. Although it exceeded the inflation target range set by the BOM (2-4%), it continued to weaken for six consecutive months. In addition, preliminary data on actual GDP for the quarter from April to June this year shows year-on-year growth of 0.9%, which has maintained growth for the sixth consecutive quarter. Considering the trend of weakening prices and stable economic trends, BOM insists on maintaining policy interest rates at the current level.
In summary, considering the above situation, it is expected that both RBI and BOM will continue to maintain their attitude of "maintaining a tight financial environment" at the financial policy decision-making meeting in August, and will not imply the imminent start of early interest rate cuts. The market generally believes that the policy interest rates of both countries will remain unchanged until at least the end of this year. Especially for the major stock indices of these two countries, India (Mumbai SENSEX index) has risen by 8.4% since the beginning of the year, while Mexico (S&P/IPC index) has risen by 11.8% (as of August 9th). Market participants seem to have raised cautious financial policy operational expectations for the central banks of these two countries.
Based on the price and economic trends in both countries, most people believe that there is no need to urgently lower interest rates at present.
On the 10th of this month, the Reserve Bank of India (RBI) and the Bank of Mexico (BOM) will announce the results of their financial policy decision-making meeting. In market forecasts, RBI's policy interest rate will remain at 6.50% and BOM's policy interest rate will remain at 11.25%, both of which are expected to remain unchanged for the third consecutive time. However, as the Central Bank of Brazil (BCB) hinted at the upcoming significant interest rate reduction cycle at the Monetary Policy Committee (COPOM) meeting on August 2nd, when to start cutting interest rates has become a highly concerning issue for two major emerging countries, India and Mexico.
The specific clues lie in prices and economic trends. In India, the Consumer Price Index (CPI) in June increased by 4.81% year-on-year, surpassing May's 4.31%. This is mainly due to the rise in food prices, which has once again sparked vigilance against inflation. Although still within the inflation target range set by RBI (2-6%), the impact of abnormal weather on prices needs further observation. In addition, according to the good economic index, there is currently no need to urgently cut interest rates to stimulate the economy. The Manufacturing Purchasing Managers' Index (PMI) released on July 1st and 3rd shows that the manufacturing index is 57.7, continuing the state of over 50 since July 2021, and the service industry index is 62.3, reaching the highest level since June 2010. RBI Bank has emphasized that 'maintaining policy interest rates unchanged does not necessarily mean a change in policy direction'.
Similar to RBI, the Bank of Mexico (BOM) also believes that there is some room for financial policy operations. The Consumer Price Index (CPI) in July increased by 4.79% year-on-year, while the core CPI (excluding food and energy) increased by 6.64% year-on-year. Although it exceeded the inflation target range set by the BOM (2-4%), it continued to weaken for six consecutive months. In addition, preliminary data on actual GDP for the quarter from April to June this year shows year-on-year growth of 0.9%, which has maintained growth for the sixth consecutive quarter. Considering the trend of weakening prices and stable economic trends, BOM insists on maintaining policy interest rates at the current level.
In summary, considering the above situation, it is expected that both RBI and BOM will continue to maintain their attitude of "maintaining a tight financial environment" at the financial policy decision-making meeting in August, and will not imply the imminent start of early interest rate cuts. The market generally believes that the policy interest rates of both countries will remain unchanged until at least the end of this year. Especially for the major stock indices of these two countries, India (Mumbai SENSEX index) has risen by 8.4% since the beginning of the year, while Mexico (S&P/IPC index) has risen by 11.8% (as of August 9th). Market participants seem to have raised cautious financial policy operational expectations for the central banks of these two countries.