India Cuts Interest Rates for the First Time in Five Years

Central Bank

Summary:

India's central bank cuts interest rates for the first time in nearly five years to boost growth amid slowing economic activity. The repo rate is reduced to 6.25% as GDP growth hits a four-year low.

India's central bank has cut interest rates for the first time in nearly five years to counter slowing growth in Asia's third largest economy.

The Reserve Bank of India (RBI) reduced its repo rate from 6.5% to 6.25%, in line with the expectations of many economists.

The repo rate is the level at which the central bank lends to commercial banks.

The latest cut happens when India's GDP growth is seen slowing to a four year low of 6.7%.

RBI governor Sanjay Malhotra said the bank was keeping its policy stance "neutral", which would open more space to support growth, signalling further rate cuts.

Investment growth and urban consumption in the world's fastest growing major economy have been flagging. Corporate profits have also shrunk in the first half of this financial year.

But moderating inflation, an increase in rural demand and good agricultural output will help growth, said Mr Malhotra.

The rate cut could lead to marginally lower mortgage and credit card interest rates as well as cheaper borrowing costs for companies.

The central bank's rate reduction follows a range of measures previously announced, including an injection of $18bn (£14.48bn) into the domestic banking system, to ease a cash shortage in the economy.

It had also cut the cash reserve ratio - or the reserves commercial banks need to maintain with the RBI - by half a percent in December.

The RBI's rate move follows the Union Budget's $12bn tax cut for the struggling middle class.

Despite this, Mr Modi's government aims to curb spending to reduce the budget deficit. With limited room for fiscal stimulus, economists expect the central bank to cut rates further by 0.5% –1% to support growth, according to various estimates.

However, global uncertainties due to US President Donald Trump's tariff war, an outflow of foreign investor money and a depreciating currency - which could further weaken if rates come down - have complicated the RBI's task.

The Indian rupee is trading near record lows due to heavy foreign investor outflows from stock markets in recent months.

Source: BBC

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Alex

Commodity

Citigroup Inc expects gold prices to hit a record US$3,000 (RM13,304) an ounce within three months, with geopolitical tensions and trade wars stoked by US President Donald Trump boosting demand for safe-haven assets.

Trump jolted markets with the prospect of tariffs that could slow economic growth, reignite inflation and disrupt global commerce. Investors will continue to seek bullion’s security and central banks are likely to keep building out their reserves, analysts including Kenny Hu wrote in a report.

“The gold bull market looks set to continue under Trump 2.0,” the Citi analysts said, citing risks such as slower growth and high interest rates.

Gold hit successive records in the past few days as concerns about the tug of war between the US and China, as well as the possibility Trump will impose duties on other nations, support bullion’s role as a store of value in uncertain times.

Citi upgraded its three-month price target for gold from US$2,800 an ounce, which the precious metal has already surpassed. Spot gold slipped as much as 1.2% to US$2,834.26 an ounce on Thursday.

The bank also said that an appreciating US dollar will increase the incentive for central banks from emerging economies to boost gold holdings in order to support their own currencies, while investors will turn both to physical gold and exchange-traded funds.

Trade-war fears have also led dealers in London to shift metal to the US, fearing the possibility that bullion won’t be excluded from potential tariffs. Premiums as of Wednesday implied a roughly 20% chance of Trump including gold in a 10% blanket global tariff, Citi said.

“A Russia/Ukraine peace deal, and confirmation of whether gold would be exempt from broad tariffs (or not), could provide a buying opportunity over the next two to three months,” the Citi analysts said.

The bank raised its average price target for the year by US$100 to US$2,900 an ounce, while leaving its six- to 12-month target price of US$3,000 unchanged.

Silver and palladium edged lower, while platinum rose. The Bloomberg Dollar Spot Index was little changed.

Bullion rose earlier in the week after President Donald Trump said the US could take over Gaza, a comment that his aides sought to tone down, and that he wants to start working on a new nuclear deal with Iran. Washington is also expected to present a plan to end Russia’s war on Ukraine next week.

Source: Theedgemarkets

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Cohen

Forex

Outlook is mixed; GBP could trade between 1.2390 and 1.2500. In the longer run, for the time being, GBP is likely to trade in a 1.2310/1.2550 range, UOB Group’s FX analysts Quek Ser Leang and Peter Chia note.

GBP cad continue to trade in a choppy manne

24-HOUR VIEW: “Yesterday, we expected GBP to ‘consolidate in a 1.2460/1.2540 range.’ Our expectation was incorrect, as GBP plummeted to 1.2361 before rebounding strongly to close at 1.2438 (-0.54%). The price action has resulted in a mixed outlook. Today, GBP could continue to trade in a choppy manner, likely between 1.2390 and 1.2500.”

1-3 WEEKS VIEW: “Following GBP rise to 1.2550 two days ago, we indicated yesterday (06 Feb, spot at 1.2505) that ‘upward momentum is increasing, but not enough to suggest a sustained advance.’ We added, ‘for a sustained advance, GBP has to break and remain above 1.2550.’ Yesterday, GBP plummeted to a low of 1.2361. The breach of our ‘strong support’ level of 1.2370 indicates that the buildup in momentum has faded. To put it another way, GBP is not ready to break above 1.2550. For the time being, it is likely to trade in a 1.2310/1.2550 range.”

Source: FXSTREET

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Warren Takunda

Economic

The Pound to Euro exchange rate dropped by as much as half a per cent on the day the Bank of England cut Bank Rate by 25 basis points, slashed growth forecasts, and two Monetary Policy Committee (MPC) members voted for a much bigger 50bp cut.

What got tongues wagging was the switch of MPC member Catherine Mann to vote for a 50 basis point cut. She has been a staunch 'hawk', often resisting the urge to cut or voting for a 50 basis point hike when others were voting for a more modest 25bp hike.

This prompted a slight rerating in interest rate expectations, and the market has now moved to price in three further rate cuts this year.

But the FX market reaction was more exciting. The Pound-Euro fell to a low of 1.1940 on the day and Sterling was lower against all its peers, with losses against the Dollar extending to over a per cent at one point.

However, the scale of the FX move outpaces the scale of the move in interest rate markets, which is the first sign the Pound can recover further.

The halving of growth forecasts underpins Mann's thinking and dominates financial news headlines on Friday; no wonder the decision was considered a 'dovish' one.

But the dovish assessment runs skin deep. Despite the surprise of the vote split and the GDP cut, there is overwhelming evidence the Bank will retain its cautious approach, which will underpin the Pound.

"EUR/GBP moved higher on the announcement with the dovish vote split taking centre stage," saysKirstine Kundby-Nielsen, an analyst at Danske Bank. However, "the still cautious guidance delivered today highlights the more gradual approach of the BoE compared to European peers," she adds.

Given this, Danske Bank strategists predict Pound-Euro will move higher in the coming quarters driven by a relatively hawkish Bank of England and a growth pickup in the UK relative to the euro area in 2025.

The most prominent 'hawkish' development is the jacking up of UK inflation forecasts in 2025 to a peak of 3.7% in the third quarter of this year. This is up from November's forecast for a rise to 2.8% in Q3.

The projections show inflation will suddenly drop to 'target' from 2026 onwards, but what confidence do the Bank's forecasters have that this will happen given the inherent difficulty of forecasting at longer-term timeframes?

Fade Pound-to-Euro Rate's Weakness, The Bank is as 'Hawkish' as Ever_1

Image courtesy of Lloyds Bank.

Most of the MPC are aware of the counter-intuitive and confusing message that would be sent by accelerating rate cuts into rising inflation. The MPC deploys a forecasting framework that is based on three scenarios it thinks will evolve, and the minutes show scenarios two and three are now favoured.

These scenarios mean most MPC think interest rates will continue to fall at their current pace or even slower.

The statement itself reinforced this, stating that rate cuts would be "gradual", that rates need to remain "restrictive for sufficiently long", and that it would be "careful" when considering further cuts.

The more we look into the details of the day, the more we see that this was as 'hawkish' an event as any.

For the Pound, this means that any weakness from the decision itself should be faded. In fact, the outlook could become a whole lot more hawkish if inflation starts to beat expectations, which is what numerous economic surveys are signalling at the start of the year.

"We remain convinced that the BoE will have to stop cutting interest rates earlier than most expect amid strengthening inflation," says Andrew Wishart, Senior UK Economist at Berenberg Bank.

"We have been here before," he adds:

Just over a year ago, investors priced in a fall in bank rate to 3.25% by end-2025. The resulting drop in fixed interest rates available to companies and households helped drive a pick-up in GDP and pay growth that delayed the first cut until August.

"A boost to demand from rate cuts at the same time as firms are facing a large increase in costs that they are keen to pass on will push up inflation to well over 3% yoy in the second half of the year. The BoE will find it difficult to justify further loosening in that environment," says Wishart.

Source: Poundsterlinglive

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ING

Economic

US President Donald Trump is revelling in his return to the role of 'Dealmaker in Chief' as he pushes ahead with his low tax, light-touch, regulation-led growth agenda. Nonetheless, immigration controls, trade tariffs and government spending cuts pose challenges for the economy while re-shoring and regulatory changes will take time to gain traction.

Quick out the blocks

President Trump’s first few weeks in power have been a whirlwind of activity as he looks to push through with his promises of tax and spending cuts, trade tariffs, immigration controls and regulatory reforms. The sense that this policy mix would boost growth, but heighten the risk of more prolonged above-target inflation readings still holds, although views on the scale of the impact continue to evolve. So where do we stand right now?

Trump's policy thrust

Immigration: The President pledged to crack down on illegal immigration and his threat of tariffs has yielded a significant response from the Canadian and Mexican governments who are beefing up security at their US borders. Deportations have been increasing, but the primary way this is set to impact the economy is by deterring people from attempting to enter the US. In an environment of falling numbers of American-born workers, this may mean labour supply is constrained in some key sectors including construction, agriculture and leisure and hospitality. This could push up pay rates and prices.

Regulation: Trump believes that by halting and reversing a “regulatory onslaught” he can unshackle the economy and unleash growth. The most apparent way he is doing this is by making it easier to obtain permits for oil and gas exploration – “drill, baby, drill”. However, the Dallas Fed reports that the “breakeven” cost for shale producers in the Permian basin is $65/bbl when oil prices are little more than $70/bbl, so there is little financial incentive to drill right now.

Tariffs: The perception that countries have been taking advantage of the US, costing jobs and damaging the social fabric of America runs deep in this administration. Tariffs will make domestic manufacturers more competitive in the local market, but those with international supply chains will face higher costs while US exporters will fear reprisals from foreign nations.

The bigger threat is to consumer demand, which has been the main engine of US growth. The value of US manufacturing output ($2.85tr full-year 2023) is less than the value of the goods imported into the US ($3.1tr in 2023), meaning that manufacturing output would need to double in size to remove the need for imports. This is unfeasible within the next decade, let alone the next few months. If/when tariffs are applied, the squeeze on spending power will be substantial even if businesses absorb some of the costs in their profit margins. The burden will fall disproportionally on low-income households who spend more of their income on physical goods relative to higher-income households who spend more on services and experiences, which aren’t subject to tariffs.

Taxes: His primary goal is to extend his 2017 tax cuts, which expire at the end of this year. This should pass easily, but it will be very costly and contribute to an ongoing deterioration in government finances over the next decade. Remember though an extension will not boost household spending power – it merely maintains the status quo. Consequently, he wants to go further and has stated that tariffs incentivise manufacturing reshoring, but they also provide revenue that can fund tax cuts elsewhere. Among his proposals to eliminate taxes on tips, social security benefits, and overtime pay, the one concerning tips is the most likely to pass, as it is the least expensive and enjoys bipartisan support.

Government spending: Trump’s aspiration of cutting government spending by $2tr is ambitious, but more than two million employees have been offered voluntary redundancy while plans to shut the US Agency for International Aid (USAID) show clear intent to carry through. However, to deliver the scale of cuts to spending that would put US government finances on a stable footing would require the trimming of government entitlement programmes surrounding health and social security. Congress will be immensely reluctant to sanction that.

Too far, too fast?

Combining these factors we see near-term strength in economic activity continuing. Robust consumer demand remains the main theme with evidence suggesting many households have started bringing forward spending to avoid tariffs. The jobs market remains solid while manufacturing appears to be recovering after languishing for the past couple of years.

Nonetheless, the rise in Treasury yields has pushed mortgage rates higher while credit card and auto loan borrowing costs have failed to drop despite 100bp of Federal Reserve interest rate cuts. Higher government borrowing costs remain a key call for us with tariffs keeping inflation more elevated and fiscal sustainability fears fuelling investor demand for higher returns for the risks they face. Dollar strength is also a headwind, making exports less competitive in international markets.

In the second half of 2025, tariffs look set to erode spending power, and with tax cuts not materialising before 2026 and government spending being cut immediately, we expect to see cooler growth. The will-they-won’t-they nature of the tariff strategy and the lack of clarity on which countries are impacted, what carve-outs there may be and what the tariff rate will be is going to leave US manufacturers uncertain about what to do. This lack of clarity may hinder investment and hiring until more certainty is provided.

To stay updated on all economic events of today, please check out our Economic calendar

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Cohen

Economic

Home to one of the fastest-growing economies in the world, ASEAN faces unique challenges as climate change intensifies tropical storms and disrupts supply chains. The region’s future hinges on its ability to strengthen infrastructure, protect small businesses and foster collective action.

The European Union leads the way in regional climate action, rallying member states around a common climate risk mitigation strategy and legally binding countries to specific, time-bound targets. By contrast, ASEAN is a much more loosely coupled region with a preference for laissez faire cooperation. If the region were to preserve its global economic promise within a rapidly warming climate, Southeast Asian countries would need to forge closer and more coordinated partnerships with each other.

In 2024, the region collectively comprised the fifth-largest economy in the world and among the most rapidly growing. By 2040, the region is projected to be the fourth largest.

Southeast Asia’s growth is predominantly export-driven. Its young, educated and skilled workforce is cost-efficient, making it a highly attractive destination for manufacturing-related foreign direct investment. It has thus rapidly increased its manufacturing exports, playing a key role in the ‘China Plus One’ strategy which involves diversifying supply chains away from China. Indeed, China itself is making significant manufacturing investments in the region.

The region’s geography offers a further benefit to its exporting activity. It has a long coastline that connects maritime trade routes between East Asia, the Middle East and Africa. The Southeast Asia region is a rapidly developing manufacturing and logistics hub.

Unfortunately, Southeast Asia’s geographic advantages come with significant drawbacks. Southeast Asia is located in the western North Pacific basin, which is the world’s most active basin, producing 30 per cent of all tropical cyclones. Between 1970 and 2019, approximately half of the tropical cyclones in the western North Pacific basin made landfall in Southeast Asia. Parts of Southeast Asia fall within ‘Typhoon Alley’, with the Philippines receiving the highest number of landfalls in the region and among the highest in the world.

The global economic promise of Southeast Asia must be viewed in light of its vulnerability to tropical cyclones, which early climate models predict will increase in frequency and intensity over the course of the 21st century. Southeast Asia suffered an estimated US$32 billion in typhoon-related economic losses between 1987 and 2016. Extreme weather events and their associated economic losses have continued to plague the region in recent years, with typhoons, storms and floods affecting Southeast Asia’s agriculture, infrastructure, tourism and transport.

This economic disruption extends well beyond the region because of Southeast Asia’s position in upstream and downstream interlinked global value chains.

Export growth in Southeast Asian countries has been driven mainly by electronics manufacturing. The risk of extreme weather events causing operational disruptions like damage to manufacturing plants can be reduced by modifying building structures to increase their durability. But while reinforced buildings are a crucial safeguard against environmental catastrophes, there are outstanding vulnerabilities in critical utility infrastructure such as power, telecommunications, roads and transport. Even if manufacturing plants come out of an extreme weather event relatively unscathed, the risk of operational disruptions due to utility and infrastructure failure remains significant.

The 2013 Typhoon Haiyan in the Philippines caused extensive damage to airports, harbours and roads, which paralysed business operations and hampered the emergency response for weeks. In 2024, Typhoon Yagi severely disrupted Vietnam’s supply chain and logistics industry, prompting both the government and independent analysts to lower the country’s GDP growth forecast for the year.

Apart from electronics, Southeast Asia’s major exports include metals, minerals, textiles and garments and agricultural products. Upstream agricultural production is highly vulnerable to storm-related disruptions which affect the price and supply of downstream products.

Around 98 per cent of businesses in Southeast Asia are micro-, small- and medium-sized enterprises, contributing 66 per cent of total employment, 41 per cent of regional economic activity and 13 per cent of exports. A significant segment of these are smallholder farmers, many of whom live in poverty and typically experience total loss from destructive storms. While individually tiny, the collective economic contribution of micro-, small- and medium-sized enterprises make or break downstream global value chain activity, ultimately affecting Southeast Asia’s major markets.

Effectively mitigating climate and economic risk requires ASEAN to go beyond the dialogue, capacity-building and consolidated reporting that is characteristic of its environment action. Tangible outcomes in building climate-adapted infrastructures, developing climate-resilient industries and redesigning financial models to support smallholder operators are urgently required.

The stimulus for the region to work collaboratively towards tangible climate outcomes may come from its major external partners. While some major trading partners such as the European Union, Japan and South Korea consistently acknowledge the importance of Southeast Asia as a regional partner, strategic initiatives have remained largely bilateral. But other partners such as the United States and Australia are moving towards minilateral initiatives. This encourages more Southeast Asian countries to collaborate on solving shared problems, such as climate issues in the Mekong affecting Cambodia, Laos, Myanmar, Thailand and Vietnam.

ASEAN countries should more actively engage in minilateral initiatives as a step towards region-wide climate and economic risk mitigation. Employing a coordinated systems approach to risk mitigation safeguards the flows of goods, services and information in resilient global value chains. The ability of Southeast Asia to deliver on its global economic promise depends on the region weathering its storms.

Source：Eastasiaforum

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Justin

Economic

Forex

NZD/USD remains steady as traders adopt caution ahead of the US Nonfarm Payrolls release on Friday.

The US Dollar extends its recovery amid rebounding US Treasury yields.

The risk-sensitive NZD struggled as heightened risk aversion grew amid global trade and economic uncertainties.

NZD/USD remains steady after registering losses in the previous session, trading around 0.5680 during the European hours on Friday. The pair remains silent as sentiment turns cautious ahead of a key US jobs report. Traders brace for Friday’s US Nonfarm Payrolls (NFP) data, which is expected to shape the Federal Reserve’s (Fed) monetary policy direction.

The NZD/USD pair may face pressure as the US Dollar (USD) extends its recovery, supported by rebounding US Treasury yields. The US Dollar Index (DXY) has risen toward 107.70, while the 2-year and 10-year US Treasury yields stand at 4.22% and 4.44%, respectively, at the time of writing.

On the data front, US Initial Jobless Claims rose to 219K for the week ending January 31, as reported by the US Department of Labor (DoL) on Thursday. This print surpasses initial estimates of 213K and was higher than the previous week's revised tally of 208K (from 207K).

The risk-sensitive New Zealand Dollar (NZD) struggled amid heightened risk aversion due to global trade and economic uncertainties. However, trade negotiations between the United States (US) and China could temper this sentiment. US President Donald Trump and Chinese President Xi Jinping are set to discuss potential tariff rollbacks.

The Kiwi Dollar could face headwinds as the Reserve Bank of New Zealand (RBNZ) is widely expected to cut interest rates in February. Markets are currently pricing in a nearly 92% chance of a 50 basis-point cut to 3.75% on February 19, marking the third consecutive jumbo rate reduction.

Source: FXSTREET

To stay updated on all economic events of today, please check out our Economic calendar

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India Cuts Interest Rates for the First Time in Five Years

Source: BBC

Citi Sees Gold Soaring to US$3,000 On Tensions Triggered by Trump

Source: Theedgemarkets

GBP/USD: Likely to Trade In A 1.2310/1.2550 Range

Source: FXSTREET

Fade Pound-to-Euro Rate's Weakness, The Bank is as 'Hawkish' as Ever

Image courtesy of Lloyds Bank.

Source: Poundsterlinglive

Trump’S Whirlwind Leaves the World Breathless

Quick out the blocks

Trump's policy thrust

Too far, too fast?

Weathering the Economic Storms of the ASEAN Climate

Source：Eastasiaforum

NZD/USD Holds Ground Near 0.5700 Ahead Of US NFP

Source: FXSTREET

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