Indian businesses brace for higher interest rates

Leanna Byrne (0:01)

India raises interest rates for the first time in nearly four years as it tries to keep inflation under control. It's World Business Express from the BBC World Service. I'm Leanna Byrne. Could the EU get tougher on Chinese hybrid imports? And Jaguar unveils its long-awaited new electric car.

Yes, India has raised interest rates for the first time in nearly four years as the country grapples with rising inflation. The Reserve Bank of India increased its key landing rate by a quarter of a percentage point to 5.5%. Sanjay Malhotra, the governor of the Reserve Bank of India, also signaled that further increases could follow.

Sanjay Malhotra (0:44)

Given the current conditions, rate cuts are off the table in the near term. And policy action ahead can only be a rate hike or a pause, depending on the evolving conditions and the outlook.

Leanna Byrne (1:01)

Nikhil Anamdar is covering the story for us in Mumbai.

Nikhil Anamdar (1:04)

I think this really signals that the RBI is more concerned right now about inflation and not growth. And that's an account of everything from energy shocks to El Nino-like weather conditions that could affect India's agrarian sector.

And inflation is now inched up above the RBI's comfort level. And so, there is a sense that this could be just the first of a series of hikes, and there could be calibrated tightening going ahead.

Leanna Byrne (1:33)

Yeah, you have those surge in oil prices obviously caused by the war in Iran, and then also weak monsoon rates. They were pushing up food prices. So what is it like for Indian households right now?

Nikhil Anamdar (1:43)

Right now, we are certainly seeing the food prices are going up. Although most households have been shielded in terms of energy prices because the government has absorbed some of that burden. If oil continues to remain above $100, there is a sense that eventually more and more of that burden would be passed down to the common man.

And so we are having to now brace up for a period of potentially higher prices. It also means mortgage rates would go up for homeowners. Costs for companies would go up, which means margins would be squeezed. And all of that does have an impact on the economy.

Leanna Byrne (2:21)

Yeah, because at the same time, India's economy is growing very strongly, isn't it? The RBI has actually upgraded its growth forecast to 7.1%. So does that actually make it easier for the Central Bank to raise rates without doing too much damage?

Nikhil Anamdar (2:33)

Well, absolutely. I think one of the comforts that the RBI has found is that India's economy has been growing at 7% levels. And this is despite the global energy shocks, the fact that globally, you are seeing a huge amount of geopolitical uncertainties that's led to, for instance, tariffs being levied on countries such as India. And as you pointed out, weather-related disruptions that have led to a weaker monsoon, sort of the growth in the Indian economy has picked up because the government also came forward with some stimulus measures, tax cuts. Having said that, now with interest rates going up, with this energy shock that we've seen not subsiding for the last seven or eight months, there's a question mark on how resilient growth can remain going ahead.

Leanna Byrne (3:21)

That was Nicol in Amdhar in Mumbai.

A high street pharmacy and retail chain Boots has been sold to Canada's billionaire Weston family for nearly nine billion dollars. The deal covers Boots' retail operations in the UK, Ireland and Thailand, as well as its chain of opticians and No. 7 Beauty Company. They're buying it off a private equity group, Sycamore Partners, which has only owned Boots for 18 months. Now, the growth of Chinese carmakers is causing ripples again in global trade, this time in the European Union. The bloc is considering trade measures such as quotas on Chinese made hybrid vehicles, according to Bloomberg. Shares in European carmakers Volkswagen, BMW and Renault traded higher on the report. Alexander Demling covers the European automotive industry for Der Spiegel. He told me the proposal from Brussels follows similar moves it made against pure electric vehicles from China.

Alexander Demling (4:15)

That had the effect that the Chinese automakers like BYD, like Xiaopeng, they moved to plug-in hybrids because for them, the lower tariffs still applied and they won market share. Companies like Volkswagen, for example, lost market share and now they want that loophole fixed.

Leanna Byrne (4:35)

Alexander, what do you think manufacturers like Volkswagen, BMW, Stellantis, Renault, do you think they'll be quietly cheering for this perhaps?

Alexander Demling (4:44)

Yeah, because they just know that the European market is kind of the only stable one they have left. China is plummeting, the US with the Trump tariffs has become more difficult. And so they need to defend their home market because that's where they still make profits.