The Reserve Bank of India (RBI) should raise the policy rate, while long-term pressure on the rupee is likely to persist, according to Trinh Nguyen, Economist at Natixis.
Speaking to NDTV Profit, Nguyen said Indian companies continue to remain largely dependent on the domestic economy, even as there is significant emphasis on IT services exports.
She said concerns around Indian equities have little to do with interest rates, adding that India continues to be a strong diversification bet for global investors. However, she noted that investors have increasingly become concentrated in the artificial intelligence (AI) trade.
On the domestic economy, Nguyen said services and consumption continue to be the key growth drivers. She added that supply-side shocks are expected to continue squeezing corporate margins.
Commenting on monetary policy, Nguyen said the RBI should hike the policy rate. She also said rate hikes may not have a severe impact on the economy.
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That said, The Reserve Bank of India's Monetary Policy Committee (MPC) unanimously decided to keep the benchmark repo rate unchanged at 5.25% and retained its 'neutral' policy stance on June 5, choosing to monitor the impact of rising global energy prices on inflation and growth while looking through the recent weakness in the rupee.
While the MPC noted that higher energy costs and global supply-side constraints could weigh on economic activity, it said domestic demand continues to remain resilient. Reflecting inflationary pressures, the RBI raised its FY27 consumer price inflation (CPI) forecast by 50 basis points to 5.1%.
Meanwhile, on global markets, Nguyen said it was a surprise that Federal Reserve Chair Warsh adopted a hawkish tone. She also expects South Korea to continue raising interest rates after the country's rate hike earlier this week.
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