The Reserve Bank of India (RBI) recently surprised financial markets by raising interest rates by 0.5%, to 7.25%. Not only was the increase double the expectation but the central bank voiced deep concerns about inflationary pressures in India.
These were clearly evident in the wholesale price inflation figures released in mid-April, showing inflation at almost 9%, well above consensus forecasts and the RBI’s normal comfort zone. In addition to this, we have seen central banks in other key emerging market countries tightening policy, including both China and Brazil. These two countries plus India are the largest emerging economies as measured by US Dollar GDP, so the decisions of their policymakers are significant for global investors making asset allocation decisions. Markets are understandably worried when China tightens p...
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