MUFG analysts Lin Li, Michael Wan, Lloyd Chan, and Khang Sek Lee have highlighted that the Reserve Bank of India's (RBI) upcoming policy decision on 7 October is expected to be finely balanced, with significant implications for Asian foreign exchange markets [1]. The analysts forecast that the RBI will keep rates on hold at this meeting but emphasize that a hiking cycle is likely to begin from December, projecting a total of 50–75 basis points of tightening during the cycle [1].
The MUFG team also anticipates that the RBI may shift its policy stance away from neutral to signal a tightening bias, reflecting the central bank's response to strong economic growth, abundant liquidity, rising credit growth, and supportive fiscal policy in India [1]. Additionally, the analysts point to higher commodity prices and adverse weather conditions as factors contributing to upside risks for inflation in the country [1].
According to MUFG, "We are officially forecasting RBI to keep rates on hold, but more importantly we have already been calling for the central bank to start its hiking cycle from December so ultimately we think it’s just a matter of time before policy rates move higher" [1]. The analysts further note that there is a risk the total tightening could reach 75 basis points in this cycle [1].
The market implications, as discussed by MUFG, suggest that Asia FX will be influenced by the RBI's policy signals, particularly if the central bank adopts a tightening bias or signals imminent rate hikes [1].
CONCLUSION
MUFG expects the RBI to maintain rates at its October meeting but to signal a shift toward tightening, with rate hikes likely starting in December. The anticipated policy changes are expected to impact Asian foreign exchange markets, especially if the RBI moves away from its neutral stance.