Markets are pricing in nearly 100 bps of Reserve Bank of India tightening (1%) over the next 12 months, with the one-year overnight indexed swap rate rising 21 bps in September to 6.21%. (Trading Economics)
Market bully boys (bond vigilantes such as Bloomberg and JPMorgan) are trying to push India into increasing its interest rates this coming week when it should be cutting them.
JPMorgan economist Sajjid Chinoy rattled off this nonsense in an interview with Bloomberg on Oct. 1:
“This huge influx of FCNR flows (India folk wanting to put money into India) really important for India to have more ammunition against a more hostile global backdrop, but they’ve created this liquidity overhang (an overhang means people want to put money into India – that is a good thing painted as an “overhang”), which has meant that monetary conditions in the country are actually more accommodative than interest rate levels would suggest (he doesn’t say it but that means India does not need to increase its interest rates). And I think, therefore, it’s important for the RBI to a hike rates next week (wtf? completely the wrong conclusion), take an appropriately cautious or hawkish tone to signal to markets that you know more may be in the pipeline, and number three, as they have been doing in the last few weeks, aggressively sterilize these flows to ensure that there is no inadvertent monetary easing because overnight rates fall below the policy rate.”
But falling overnight rates would be good for India because it means its could more cheaply deploy solar and wind plants for a lower cost.
Chinoy is speaking bullshit that protects the climate destroyer USA and his nature-killing employer the giant bank JPMorgan.
Instead of increasing its rates by one full percentage point, India should be cutting them by about that amount, I reckon.
This is how the likes of JPMorgan and Bloomberg bully emerging countries like India in 2026.
Don’t just take my word for it. Check these facts out:
The untapped tax base is one of the central pillars.
Why India Has a Case for Lower Interest Rates
There is a provocative proposition hiding in plain sight: India may eventually have good economic reasons to run interest rates below those of Britain and America.
Not because India is weaker than them. Quite possibly because it is becoming stronger.
The conventional emerging-market logic is simple. India is a developing economy, so investors demand a higher return for taking the risk. Higher interest rates attract capital, support the rupee and compensate investors for uncertainty.
But that logic can become outdated.
Start with India’s extraordinary external financial position. The Indian diaspora sends hundreds of billions of dollars home. India is the world’s largest recipient of remittances. And through mechanisms such as FCNR(B) deposits, Indians living overseas can place foreign currency with Indian banks without necessarily taking the full risk of a falling rupee.
That creates an enormous financial bridge between India and the rest of the world.
Then consider foreign-exchange reserves. The India of today is not the India of 1991, when its reserves became so desperately low that the country was brought to the brink of default. India survived that crisis without defaulting on its sovereign debt—and subsequently built a vastly larger foreign-exchange cushion.
But perhaps the most overlooked asset is sitting inside India itself.
The Indian tax base is enormous—and still relatively lightly exploited.
India has more than 1.4 billion people and an economy that is rapidly formalising. Millions of people are moving from informal work into the formal economy. Digital payments leave increasingly extensive financial footprints. Businesses are becoming easier to identify and tax. Incomes are rising. Consumption is expanding.
Today’s tax revenues therefore tell only part of the story.
A creditor should also ask: What could this country collect if it became substantially richer and more economically formal?
That is where India becomes fascinating.
A country with a relatively low tax take but a huge and expanding economy possesses something resembling a fiscal option. As incomes rise, the government can collect more revenue even without dramatically increasing tax rates. If nominal GDP doubles over time, the potential revenue base can expand enormously.
That matters for sovereign creditworthiness—and therefore for the interest rate investors need to demand.
There is also a growth argument.
India needs colossal amounts of investment: housing, factories, electricity, transport, technology and infrastructure. Every percentage point reduction in the cost of capital can alter the economics of thousands of projects. Cheaper money can mean more construction, more business investment and faster productivity growth.
And faster growth feeds back into the tax base.
Lower rates → more investment → faster growth → higher incomes → broader tax base → stronger government finances.
That is potentially a virtuous circle.
Of course, there is a limit. The Reserve Bank of India cannot simply copy the Bank of England or the Federal Reserve and announce whatever rate it wants. Inflation, the rupee, capital flows and financial stability matter enormously. A large interest-rate gap can encourage money to leave rupee assets and put downward pressure on the currency.
So the argument isn’t that India should always have lower rates.
It is that India’s economic transformation could justify a smaller structural risk premium than the traditional emerging-market model assumes.
India increasingly has four extraordinary financial assets:
a vast diaspora;
huge foreign-exchange resources;
a rapidly expanding economy;
and a gigantic, still-underdeveloped tax base.
Put those together and the story changes.
India does not merely have the potential to become richer.
It has the potential to become fiscally much more powerful than today’s tax numbers suggest.
And if that happens, lower interest rates would not necessarily be a sign of India becoming less ambitious.
They could be a sign that the world’s great emerging economy has finally become confident enough to make capital itself cheaper.
I cant think of a reason why India’s interest rates should be above those in the USA and UK.
Interest-rate hikes under these circumstances is corporate welfare for banks, not any solution at all for the good people of India
Get a grip, RBI folks
Notes (working….more to come)
The RBI’s efforts to drain surplus liquidity following record $133 billion FCNR(B) inflows have further pressured yields, while the government’s plan to borrow nearly INR 8 trillion through March adds to supply concerns.
Debt markets will be closed on Friday, with trading resuming on October 5.
[CARRZEE: I doubt these inflows threaten inflation. Inflation is already above interest rates and wage growth …higher interest rates don’t solve war-based inflation or climate-based inflation. Higher interest rates only solve wage-based inflation (and wage inflation is below actual inflation …so it is actually wage deflation ffs)]
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- Undermining the RBI: This excess cash pushed overnight lending rates below the Reserve Bank of India’s (RBI) 5.25% policy rate. This effectively makes borrowing cheaper than policymakers intend, right when domestic inflation is picking up. [1, 2, 3]
- Costly Interventions: To prevent this cash from supercharging prices, the RBI has had to aggressively drain over one trillion rupees through bond sales. The indirect fiscal cost of managing this excess liquidity could top 1 trillion rupees, heavily reducing the surplus dividend the RBI usually transfers to the government. [1, 2]
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- Because the RBI offered attractive 6% to 7% interest rates to lure Non-Resident Indians (NRIs)—roughly double what US banks pay—the financial burden on the central bank is staggering.
- The RBI’s net short dollar position in the forward market exploded to a record $136.77 billion to back these commitments. [1, 2]
| Metric | Context / Impact |
|---|---|
| Total FCNR(B) Inflow | $133 billion (August 31 closing date) |
| RBI Forward Market Short Position | Skyrocketed to a record $136.77 billion??? |
| Estimated Indirect Fiscal Cost | Could exceed 1 trillion rupees in liquidity management |
| Maturity Timeframe | 2029–2031, threatening sharp future dollar demand |
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- Would you like to look into how this is impacting interest rates and deposit wars among commercial Indian banks?
- Should we track how the RBI’s upcoming monetary policy meeting responds to this hawkish dilemma?