Against the tide: RBI holds rates as the world cuts
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Today on The Daily Brief:
Why did the RBI keep the repo rate unchanged despite other countries reducing it?
First quick commerce now quick food
FTSE Russell is pro Indian bonds
Why did the RBI keep the repo rate unchanged despite other countries reducing it?
Yesterday, the Reserve Bank of India (RBI) decided to keep the repo rate unchanged at 6.5%. For those who are new to this, the repo rate is the interest rate at which the RBI lends money to commercial banks. It’s a key tool they use to control inflation and support economic growth.
Some expected the RBI to cut this rate—since a lower rate can make borrowing cheaper, encouraging more spending and investment. But the RBI chose to hold off, and they had specific reasons for doing so.
As investors, it's important to understand why, so let’s break down the decision and how it connects to what’s happening around the world.
First, let’s look at the global picture. Central banks are taking different actions with interest rates. For example, the U.S. Federal Reserve recently cut its rates by 0.5% to boost growth by making borrowing more attractive. Several central banks in other emerging markets have also started lowering their rates after raising them earlier.
To give you a sense of the global trend, there have been 21 rate hikes and 130 rate cuts worldwide in 2024. Last year, in 2023, we saw 161 hikes and only 84 cuts. So, globally, the trend seems to be moving toward lowering rates to stimulate economies.
Despite this trend, the RBI took a more cautious path. So, why did the RBI decide to hold steady while others, like the Fed, are cutting rates?
RBI Governor Shaktikanta Das and his team have a tricky balancing act. They’re focused on keeping inflation under control while also trying to keep India’s economy growing.
What’s important here is that the RBI has recently shifted its approach to a 'neutral' stance. When a central bank is 'neutral,' it means they’re keeping their options open, ready to respond based on how the economic data changes.
This flexibility is crucial for the RBI right now. Inflation could rise suddenly, especially with global factors like increasing commodity prices. At the same time, the economy needs support to keep growing. So, the RBI wants to ensure inflation is under control before thinking about cutting rates.
In fact, Deputy Governor Dr. MD Patra mentioned something interesting recently. He talked about an “inflation hump,” meaning the RBI expects a temporary rise in inflation and wants to wait for that to settle before making any major changes like rate cuts.
Even though the RBI is being cautious about inflation and rates, they’re quite optimistic about India’s growth. They’re expecting the economy to grow by 7.2% in 2024-25, which is strong compared to other countries.
Why is the RBI so confident about this?
They see a few key reasons:
People are spending more.
The government is also spending a lot.
Agriculture is doing well, thanks to good monsoon rains.
There are positive signs on the demand side too. Both rural and urban consumption are strong, government investment is picking up, and exports are benefiting from better global trade conditions.
But while the growth outlook is strong, inflation is still a worry. The RBI expects Consumer Price Index (CPI) inflation to be around 4.5% for this year. Inflation did dip to 3.6% in July and 3.7% in August, but it’s expected to rise again in the short term.
Why? A few reasons
First, there’s the “base effect”—last year’s inflation numbers were low, so this year’s numbers might look higher by comparison. On top of that, rising food prices, uneven monsoon rains affecting crops, and global commodity prices—especially crude oil—are all putting pressure on inflation.
Governor Das also noted that global data from the Food and Agriculture Organization and the World Bank shows rising food and metal prices, which could push inflation higher in India.
That said, the RBI expects food inflation to ease by the fourth quarter of this financial year, once the kharif harvest comes in and things look good for the rabi season. But they’re in no hurry to cut rates—they want inflation comfortably back near their 4% target before easing policy.
Now, let’s talk about financial stability—where there are some concerns
The RBI pointed out a few issues with the health of banks and Non-Banking Financial Companies (NBFCs). Even though banks are doing well, the RBI is worried about the lending practices in the NBFC sector.
There’s been an increase in unsecured lending by NBFCs, especially in high-risk areas like consumer loans, microfinance, and credit card debt. To address this, the RBI is urging banks and NBFCs to tighten their lending standards and keep a close eye on loans after approval.
Governor Das also mentioned that some NBFCs have been growing aggressively in these high-risk areas. If left unchecked, this could pose a risk to financial stability. The RBI hopes these companies will 'self-correct' before stricter regulations become necessary.
The RBI governor made it clear that while their actions so far have had a positive impact, they are still keeping a close watch on banks and NBFCs. They want lending practices to remain strong and sustainable, especially in parts of the market that are more vulnerable.
First quick commerce now quick food
Swiggy and Zomato are in a race to make food delivery faster than ever, with both aiming for 10-minute deliveries, inspired by the quick commerce trend in grocery delivery. Recently, Swiggy launched Bolt, offering food in 10-15 minutes in major cities like Bengaluru, Delhi, and Mumbai. This isn’t their first shot at rapid delivery—back in March 2023, Swiggy's Instamart introduced Instacafe for quick snacks and drinks.
Zomato, meanwhile, is revisiting the idea after putting its Zomato Instant service on hold in 2022. As Deepinder Goyal admitted in a Moneycontrol interview: "Zomato Instant wasn't the right product-market fit. But 10-minute food could be a game-changer if we get it right." He added, "The jury is still out on 10-minute deliveries... Scaling it is tough because we don’t want to cook food ourselves. We need the right partners, and that’s a challenge."
The main challenge with 10-minute delivery lies in its limitations. The menu is restricted to items that can be prepared super quickly, like instant noodles, coffee, sandwiches, or microwaved frozen food. This raises some important questions about whether this model can keep customers coming back:
Can pre-prepared or quickly made food meet customers' expectations for taste and freshness?
With limited options, will customers quickly get bored of the available choices?
How often do people really need food delivered in 10 minutes? Is it solving a regular problem or just an occasional convenience?
Success in this model depends on finding the right balance between speed and satisfaction—a tricky balance that hasn't been easy to achieve so far.
But it seems like the push into 10-minute delivery is more about defending territory than seizing new opportunities. Swiggy and Zomato appear to be fending off new challengers like Swish in Bengaluru, which offers 10-minute food delivery. Even Zepto has joined the fray with Zepto Café, delivering snacks and beverages quickly. Maybe it's because customer expectations are changing fast.
As Deepinder Goyal put it, "Blinkit's speed has made Zomato feel slower," showing that this isn't just about logistics—it’s about staying relevant in a market where people increasingly expect things instantly.
While they test the waters with rapid delivery, both companies are also exploring other avenues:
Zomato is diving into lifestyle experiences with its District platform, rebranded from Paytm's Insider business, focusing on events and dining out.
Swiggy is wooing high-end customers with Rare Club, a premium membership that offers exclusive experiences. A Swiggy executive explained, "We're targeting the top 0.1% of young professionals who want convenience and special access."
The economics of 10-minute food delivery are still unclear, but turning a quick profit might not be the main goal right now. The real challenge is winning over customers and keeping them hooked. As Swiggy and Zomato continue to innovate and expand, some big questions remain:
Who will find the right balance between speed, quality, and a great customer experience?
Will the 10-minute delivery model earn enough customer love to stick around?
Could this be just the beginning of a new wave of innovation in food delivery?
Only time will tell if this is a game-changing shift or just a passing trend in the ever-evolving world of food delivery.
FTSE Russell is pro-Indian bonds
Let’s talk about a big change in the Indian bond market that’s catching the eye of global investors. FTSE Russell, a major player in global index tracking, announced that starting from September 2025, Indian government bonds will be part of its Emerging Markets Government Bond Index (EMGBI).
What does this mean? Simply put, it’s expected to bring in around $5 billion in fresh foreign investment into India’s bond market. And this move isn’t happening alone—it follows similar steps by JP Morgan and Bloomberg Index Services.
To give you some context, back in September 2021, JP Morgan decided to include Indian government bonds in its emerging market bond indices. This was a big deal because these bonds are worth over $330 billion, and Indian bonds will make up 10% of the index! The inclusion process will run from June 2024 to March 2025, and JP Morgan’s decision alone is expected to draw in about $25 billion into India—a huge influx of foreign funds.
This is notable because, in the past, the Reserve Bank of India (RBI) has been careful about foreign investment in Indian bonds. They’ve set strict rules, like quotas and minimum holding periods, to manage how foreign investments affect the rupee and keep it from becoming too volatile.
But things started to shift when the RBI relaxed some of these rules, making it easier for foreign investors. And what happened next? JP Morgan added Indian bonds to its index, leading to a surge in investments. Between October 2023 and September 2024, foreign investors put a whopping ₹1,80,470 crore into Indian government bonds. And if that wasn’t enough, Bloomberg Index Services also joined in, announcing that it would start including Indian bonds in its Emerging Market Local Currency Index in January 2025, and now we have FTSE Russell on board too.
This has made Indian bonds a lot more attractive to foreign investors. The numbers back this up. Foreign ownership of eligible Indian bonds has increased from 2.7% to over 4.5%. And looking at the total share of foreign-owned Indian government bonds, it’s grown from 1.4% before these announcements to about 3% today.
But how is this impacting the bond market? Bond yields are a good way to gauge investor sentiment, and we’ve seen a noticeable drop. The yield on India’s 10-year bond has fallen from 7.15% in September 2023 to about 6.76% by October 2024. This is a big shift, and analysts expect yields on 5-to-10-year bonds to stay between 6.55% and 6.75% in the near future.
One interesting point is that this drop to 6.7% happened even before the RBI cut interest rates. So, we might not see much of a drop in yields through further rate cuts. But even at these lower levels, it’s still a win for Indian companies. Lower yields mean cheaper borrowing costs, which helps boost overall economic growth.
To sum it up, adding Indian bonds to global indices is making a big difference. It’s attracting foreign investments, bringing down bond yields, and helping India’s financial markets integrate more with the global system.
Tidbits
PepsiCo reported strong double-digit revenue growth in India, Egypt, and Vietnam, even though it lowered its global sales forecast. CEO Ramon Laguarta highlighted Southeast Asia and India as key regions for the company’s growth.
In GIFT City, ship leasing activity doubled between July and August 2024, with 16 lessors now in operation. Aircraft leasing also saw a boost, reinforcing GIFT City’s reputation as a hub for these services.
Sri Lanka’s new government plans to reassess Adani’s wind projects due to sovereignty concerns, creating uncertainty around the group’s energy and infrastructure plans in the region.
GIC is thinking about selling its 50% stake in Greenko Energy Holdings, which could value the renewable energy company at $10 billion. This move might attract new investments into India’s renewable energy market.
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Good explanation