On Episode 997 of The Core Report, financial journalist Govindraj Ethiraj talks to Madan Sabnavis, Chief Economist at Bank of Baroda Research as well as Amit Pabari, Managing Director at CR Forex.

SHOW NOTES

(00:00) Stories of the Day

(00:50) A Trade Deal With The US Appears Distant And Near Impossible Now

(04:47) Could RBI Hold Rates In Its Credit Policy This Week And Why?

(14:13) Airlines Are Raising Fares Again

(15:01) Battle Between Airlines And Mumbai Airport Intensifies As The Airlines Oppose A Forced Shift To Navi Mumbai

(18:12) The Rupee Is Under Pressure Once Again. Where Could It Go Next?

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NOTE: This transcript contains the host's monologue and includes interview transcripts by a machine. Human eyes have gone through the script but there might still be errors in some of the text, so please refer to the audio in case you need to clarify any part. If you want to get in touch regarding any feedback, you can drop us a message on feedback@thecore.in.

Good morning, it's Tuesday the 6th of October and this is Govindraj Ethiraj broadcasting and streaming weekdays from Mumbai, India's financial capital

And our top stories and themes…

A trade deal with the United States appears distant and near impossible for now.

Could the Reserve Bank hold rates in its credit policy this week and why?

Airlines are raising fares once again.

Battle between airlines and Mumbai airport intensifies as the airlines oppose a forced shift for some of them to Navi Mumbai.

The rupee is under pressure once again. Where could it go next?

Markets, India-US trade Deal, Oil and Gold

A trade deal with the United States was never close at hand, at least for the last year, but it looks like the Indian side has thrown up its hands.

India's Finance Minister Nirmala Sitharaman on Monday said that talks have reached a plateau beyond which a compromise would be difficult. This followed comments from the United States Trade Representative Jameson Greer on Friday who said that a trade deal was in its final stages but not imminent. The two sides had agreed to an interim deal earlier this year but negotiations have been going on since then.

While trade negotiators have suggested that they've been moving, all the political signals have indicated the opposite. To some extent it was expected as well and really goes back to the arbitrariness with which India has been treated when it was slapped with amongst the highest tariffs for any country last year, a move the U.S. Supreme Court subsequently struck down. Presently the talks have also been complicated by new U.S. legislation which gives President Donald Trump the power to impose tariffs of as much as 100% on buyers of Russian oil and gas.

India has already retaliated saying that such measures could hurt bilateral ties with the U.S. and disrupt global energy markets. The fact that there is no trade deal of course is not the end of the world because life is going on. Trade expert Ajay Srivastava said over the weekend that one possible reason for the delays is that the U.S. tariff offer lost its original basis on February 2026 when the U.S. Supreme Court invalidated the reciprocal tariff regime.

The February framework had offered to reduce India's reciprocal tariff from 25 to 18 percent in return for concessions but once the tariff regime was struck down he says the value of the U.S. offer became unclear. But while the trade deal itself may take time to work out whenever it does the atmosphere surrounding it are important because they give us an inkling of where the two countries stand vis-a-vis each other particularly on political grounds which in turn does have some impact on capital and flows. Meanwhile oil prices were higher on Monday after crude exports from the Rose and the G7 nations said that they would boost supplies as we mentioned on Monday as well.

Brent crude futures were higher slightly to about $102.40. With all this in the backdrop the benchmark indices in India snapped a four-day losing streak along with global equities which started advancing. The Sensex was up and closed 472 points higher at 72,382 and the Nifty 50 was up 133 points to close at 22,555. The broader markets were also stronger with the Nifty mid-cap 100 and the Nifty small-cap 100 rising 0.6 and 0.4 percent each.

Meanwhile a report in Bloomberg says stockbrokers are emerging as a major force in India's short-term debt market borrowing billions of dollars to finance investors growing appetite for leveraged equity bets. Brokers accounted for something like 21 percent of commercial paper issuance so far this year up from about four percent five years ago according to prime database and they raised about 320,000 crore rupees or about 33 billion dollars according to that data based on issuance by prominent brokers. So the value of leveraged equity positions has approached a record 160,000 crores as of September 30th.

Bloomberg said quoting data from indiamtf.com increasing funding needs even as stock prices remain weak. Meanwhile the rupee continues to be under pressure as well and much more on that shortly. Elsewhere the euro fell to its weakest level since May 2025 thanks to France's deepening fiscal crisis and the prospect of fresh political upheaval in the region.

The euro dropped about 0.8 percent to touch 1.11 dollars a Bloomberg report said. The latest bout of weakness came after Spain's prime minister Pedro Sanchez called for snap elections next month which injected fresh political risk. Last week saw a sharp government bond sell-off in the region and triggered memories of a debt crisis 15 years ago Bloomberg report said referring to the European zone.

Gold prices were up on Monday thanks to continued worries of rising US government debt and gold prices were up to 4159 dollars per ounce.

Could RBI Hold Rates In Its Credit Policy This Week?

Many economists are betting that the reserve bank of India will raise rates this week warning it risks falling behind the curve as inflation quickens. 60 percent of economists polled by Reuters expect a 25 basis point rate hike at its policy meeting on Wednesday that's tomorrow.

If that happens it would be the reserve bank's first in nearly four years and lift the benchmark repo rate from 5.25 percent where it has been for almost 10 months. Earlier the reserve bank had cut rates by about 125 basis points in 2025 that's last year from six and a half percent to 5.25 percent. Meanwhile a note from Bank of Baroda research or BOB research says they're not expecting a rate hike and saying that they expect the reserve bank to keep both the repo rate as well as the stands unchanged with a very cautious tone.

Hence BOB says the policy repo rate is expected to remain at 5.25 percent. They are however projecting higher GDP numbers as well as higher inflation numbers tracking current prices or trends in prices of key commodities. I reached out to Madan Sabnavis chief economist at BOB research and I began by asking him why he was not expecting or seeing a rate hike this week.

INTERVIEW TRANSCRIPT

Madan Sabnavis: You know, actually, Govind, it's this way, that we are actually looking at the repo rate going up to 6% in the course of the next six months or so. So, we are looking definitely at the rate being high. However, I think, October, the right time to do a rate hike, to my mind, probably not.

The reasons are manifold. First, if we look at it in terms of what the commentary of the RBI, both in terms of the statement, as well as the minutes, they're not very different from what we have, the conditions which are prevailing today. You all know that growth has been slightly better.

Inflation is definitely a concern, and even I do agree that inflation in a couple of months' time is going to cut 6%. But as the Monetary Policy Committee meets on Wednesday, they're actually looking at an inflation number of 4.8%. But the whole thing is, should we do it in a pre-emptive mode? Should we do something before inflation comes or not?

I think that is where there could be a difference of opinion. Now, I think that in this current situation which we are in, we should remember that, first, we have had the FCNR deposits which have come. Now, this has actually meant that banks have a plethora of funds.

And if I increase the interest rates today, we will see that the lending rates are going to go up automatically, since a large part of the banking portfolio is based on an external benchmark. However, banks will not be in a position to do any transmission. There's no reason why they should be increasing deposit rates.

And the reason is that, even today, if you look at the CD market or looking at a bulk deposit market, banks are seeking less recourse, because you have FCNR deposits which have come in at a cost of 6.5% or 6.75%. So transmission will be an issue. In case you do it in December, there's a clearer picture about A, inflation. There's a clearer picture about how much of these surplus funds have been absorbed by the system in the form of credit or through any of the policy measures of the RBI.

And then it would be more appropriate at that point of time to increase the rate. Another thing is that we are talking in terms of the economy growing at 7.8%. The first quarter showed that consumption had grown at a fairly steady pace of slightly less than 10% in nominal terms. And we are at the threshold of the festival season.

Now, normally in the festival season, they would tend to be spending. A lot of it is also based on leverage. And therefore, I think at this particular point of time, inflation officially would be 4.8%. And while there is a threat of inflation going up, which is the major target of monetary policy, one could still defer the decision for December rather than come in the way of consumption to the extent that interest rates would come in the way of increasing consumption during the festival season. So that's the rationale for it.

Madan Sabnavis: Right. Madan, so as far as things go internally, but externally, the pressures are clearly building, including transmission through higher fuel prices and so on. I'm talking about inflation.

But otherwise too, we can see central banks raising rates around the world or feeling pressure to do so. How are you contrasting what's happening outside versus what's happening inside?

Madan Sabnavis: So, you know, let's admit that whenever we are seeing central banks increasing the rates, the primary factor has been inflation. Inflation based on their own limits, which they are able to tolerate. So therefore, we have seen the Federal Reserve doing it, ECB doing it, Bank of Japan, so on and so forth.

And a number of central banks which have done it. And it's also true that when central banks increase interest rates, there's a tendency for bond yields to go up. Therefore, we are seeing that even the Indian bond yields have gone up ever since the Fed increased rates.

But if you ask this question as to how exactly is monetary policy being driven by, what is it which is driving? It's not being driven by what other central banks do. It goes on basis of domestic consideration.

When I look at domestic considerations, to make considerations at the inflation. So I think as long as inflation appears to be within reasonable limits, which it is as of now, while definitely rising federal interest rates is going to be something which cannot be ignored. Because some point of time, it's going to affect Indian bond yields.

That cannot be the overwhelming factor. So I'm not against the rate hike. As I told you, I'm a bit more aggressive.

And I'm looking at the repo rate ending at 6% besetting a real interest rate of 1%. It's a minimum which we should have. And we are going to have an inflation of 5%, which is the average which we have had over the last 15 years or so.

So therefore, I think it's a reasonable number to talk of. It's just the timing is what I have a difference. We were saying that we could wait because the opportunity would be better in case we do it in December.

Govindraj Ethiraj: What other trends are you seeing Madan in terms of lending either food or to enterprises, which also is a linked question linked to economic activity.

Madan Sabnavis: So actually, we have seen that bank credit has been very robust. In fact, what we have seen is that is good growth coming even from large corporates. Now that is very interesting thing.

Because if I looked at the last three, four years, we saw bank credit growing at a steady pace for largely being driven by the personal loan segment. That's a retail segment. But today, what we are seeing, it's more broad based.

We are seeing it happening from services, retail loans, and also within manufacturing. It's not just the SMEs driving credit. It's also the large corporates, which actually means, if I put it juxtaposed is with CMI data on investment intentions, where we are seeing a large amount of intentions being shown by industry.

So it does look like that even large corporates are in the borrowing mode, which means that there is investment going on. Because one does believe that this growth rate, which we saw of 7.8% in the first quarter, which we are probably average to something like 7, 7.2% for the entire year. But we are looking in terms of, if I want to look at what's going to happen in the next couple of years, we're looking at growth going towards 8%.

So I think there's a large amount of investment coming through. So that's why what is getting reflected in terms of growth in credit.

Govindraj Ethiraj: Last question. So in terms of oil prices, you know, there was general expectations that we will see crude go back to even for calculation purposes around $90 a barrel, but it's been now stubbornly above $100 a barrel. And it seems to have, at least for now, diverged from flows, because flows seem to have picked up, but prices are not going down.

So be that as it may, how are you looking at that as a factor in the equation in terms of prices and consumer impact?

Madan Sabnavis: So here, what we're seeing is that we really don't know where crude oil prices will actually end up. I can have a guess of saying that maybe for the year, we could average $90 to $100. Earlier, we had assumed it would be $80 to $90.

Now, if I'm going to look at, say, the next six months, where it could be in this region of $100, if I look for the full year, I may be ending up in $90 to $100. But I think there are two parts we should look at it. One is how wholesale price index, the WPI inflation gets affected.

Second, how CPI gets affected. But WPI, we've already seen going by over 10%. And I think the oil basket is something which has contributed in a big way, because it enters as an input cost for a number of industries.

Now, you look at glass, you look at ceramics, you look at fertilisers, other chemicals. So I think that is something which has already come in. And that's something which could be having an effect on the CPI or inflation number.

But I think the important question is whether the government will actually increase the prices, the retail prices of fuel. Now, they did it at one point of time. So we've had one round of increase in what we're paying for petrol and diesel.

Are they going to do it a are again making losses on sale of petrol and diesel? I haven't actually made any firm calculation, but I should think it should be in the region of around 5 to 10 rupees a litre. Now, if this is actually the case, is this something which can be born for a longer period of time?

Probably not. So there could be a second round of increase in retail prices of fuel, which could then mean that CPI inflation is going to get impacted further. So I think that's where I think the impact will come in terms of policy, because if CPI goes up, then as Reserve Bank, you have to be worried about it.

WPI will have to wait to see how the past still takes place. I think a lot of companies have been absorbing this higher cost, but they've been making lots of announcements that this cost will have to be passed on to the consumers. So that's why I see even poor inflation rising in the next six months.

Govindraj Ethiraj: Madan, thank you so much for joining me.

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A more stable policy backdrop encompassing lower government spending and stronger economic growth is needed to curb surging borrowing costs. Anthony Gutmann co-ceo of Goldman Sachs international told CNBC on Monday speaking to CNBC's Squawkbox Europe he said that rising government bond yields are a challenge across the western world highlighting the recent turmoil in US treasuries and French government bonds. He said we all know what's driving it we are focused on energy costs on the labour market but fundamentally what do we need to solve this problem we need lower fiscal deficits and we need more durable economic growth.

Airlines Are Raising Fares Again

Brace for higher fares Indigo on Monday said it would increase its fuel charges on domestic and international routes from 6th of October that's today as aviation turbine fuel costs rise globally fuel charges on domestic routes could go between 375 and 1300 rupees while those on international routes could go anywhere between 1000 to 10,000 rupees based on the distance travelled. Indigo last raised fuel charges in April a Reuters report said and it also said that aviation turbine fuel costs remain volatile thanks to the war with global prices rising 14% month of month in October. Jet fuel accounts for roughly 40% of airlines operating costs and of course with airlines like Indigo raising fares other airlines can be expected to follow suit.

Meanwhile airlines are pushing back on Mumbai airport's forced attempt to move some of their operations from Mumbai's existing airport in suburban Mumbai to Navi Mumbai about 50 kilometres away the distance being manageable but the access is presently not particularly for those who stay on the western side of Mumbai. A business standard scoop said that airlines on Sunday asked the Adani group to produce records of all consultations on Mumbai airport's terminal one redevelopment since 2020 challenging the airport operators claim that extensive consultations with airlines have been ongoing since then the larger point being that the airlines were not consulted on the move which is evidently being thrust upon them. Last week the international air transport association also asked the ministry of civil aviation to intervene against Mumbai international airport or MIAL proposal to forcibly shift around one third of every airline's international passenger and cargo operations to the newly opened Navi Mumbai international airport from the 1st of October saying the plan was not developed in consultation with airlines.

The IATA which has over 370 airline members from 120 countries said this had created confusion among airlines and passengers and raised operational commercial and regulatory concerns. Both operators that's MIAL and NMIL that's both the airports in Mumbai city and in Navi Mumbai which is not technically Mumbai are controlled by the Adani group. IATA had said in its letter dated 9th of September that it is fundamentally opposed to forced airline relocations and transfer of operation should be voluntary commercially and operationally viable and supported by comprehensive operational readiness and airport transfer process or ORAT consulted upon and agreed to by airline stakeholders.

Meanwhile in a communication sent to the Adani group controlled Mumbai international airport the airline operators committee or AOC also asked it to explain the basis of ordering the airlines to shift a specific 33% of international services to the new airport by the 25th of October that being the new date. Business standard said it reviewed the communication and also quoted the company that's the Adani's saying in a press release on Saturday that it has asked airlines to shift their services to Navi Mumbai because of safety concerns regarding the 60-year-old building which is terminal 1 of the airport. The Adani airport top brass were quoted as saying that extensive consultations with airlines on the future of terminal 1 have been ongoing since 2020 and the proposed redevelopment was also presented before the airport's economic regulatory authority and subsequently incorporated into the approved tariff framework.

They also said that while they appreciated the concerns expressed by some airlines or certain airlines passenger safety must remain paramount. The AOC responded on Sunday seeking details of the consultation records since 2020 and pointed out that the Adani group took over Mumbai international airport only in mid 2021 and thus they said we request all minutes of meetings consultation records and documented outcomes of all such meetings since 2020 to be produced and shared with all stakeholders. T1 is of course an older terminal but it's not clear whether it is 60 years old as the Adani's have claimed because GVK group which owned and ran the airport from 2006 till 21 had revamped terminal 1 soon after it took over or at least several parts of it.

Possibly there are still some antiquated sections but it's not clear whether the entire terminal is a safety concern and how. We will of course be reaching out to the Adani airport's group for their response on this.

The Rupee Is Under Pressure Once Again

India's forex reserves have fallen from about 785 billion to 747 billion dollars since the post-FCNR peak of inflows that's 120 billion dollars.

The rupee is at about 96 rupees 30 paise to the dollar. The outflows are still strong foreign portfolio investors pulled about six billion dollars from equity and debt in September including over two billion dollars from debt and one reason for that is because the returns in home markets are obviously rising as we've been seeing in the last few weeks. Meanwhile a Reuters poll of forex strategists has said the rupee is expected to languish near record lows over the next three to six months as capital outflows keep pressure on the currency despite heavy intervention by the reserve bank of India.

The rupee fell to a two-month low last week and is expected to trade about 96 rupees 10 paise per dollar in three months and weaken to about 96.50 by end March according to the median forecast in Reuters poll of 35 currency strategists conducted between September 30th and October 5th. I reached out to Amit Babari, managing director of CR Forex and I began by asking him how he was seeing the latest movements of the rupee and more importantly what his outlook was.

INTERVIEW TRANSCRIPT

Amit Pabari: I think in last 8-9 months we have met couple of times and every time we have met we have discussed that Rupee will be under pressure and Rupee is likely to get weaker. Probably we were expecting it to move towards 96.5 six months back and exactly we are near those level now. But this time I am not going to tell you Rupee will be under pressure.

In fact, I am going to change my stance from weaker Rupee to a stronger Rupee. Okay and why is that? Basically, I will give you 4-5 data points which are suggesting that in next 6 months Rupee will not underperform, it is going to outperform.

The first reason is REER. In 2023-24 when RBI tried to manage Rupee in a 1 rupee range 83-84. At that point of time, our REER was trading at 104.

It means that other currencies have got much weaker and we were on a stronger side by 4%. At this point of time, RER is trading close to 92. It means that other currencies have become stronger than us or are trading stronger than us by 8%.

That can be easily visible in terms of dollar index data point. Dollar index was trading at 114 last year. Now it came down to 95 currently trading near 100.

So RER is suggesting that good times for Rupee is going to come. That is the first data point. Second data point is oil.

Oil is classically following economics principle of law of diminishing marginal utility. Law of diminishing marginal utility says if you are consuming a mango at the first time, you are going to enjoy at the highest and as and when you start consuming more and more, the utility is going to get lower and lower. Similarly, it is happening with oil also.

When in the month of March, first negative news came about West Asia war, oil was trading near 120 dollar per barrel. On the second news, it made a high of 110. At the third negative news, it made a high of 104.

So basically, every time the news is coming, oil is making a lower highs. It is indicating that supply, which was a constraint in the month of March, again has started coming back. And today, Saudi have reduced the price by $5 per barrel.

These are all indications that crude oil prices are likely to move lower. Third point will be interesting to watch. What will RBI do in the monetary policy?

If RBI goes and surprises the market by sounding hawkish as compared to Fed, then the interest rate differential between US and India will improve and we might see flows coming into Indian debt market. Fourth, we are strongly believing that FIIs in the equity market are going to come. Now let me give you a few data points about Indian equity market.

Last year, in the month of September, cement production was close to 35 million tonnes. Currently, it is close to 43 million tonnes. So on a year-on-year basis, we are seeing a good consumption pattern in cement data.

Second, auto sales numbers, passenger vehicle sales numbers are coming good. Third, credit growth of banks is giving us fantastic results. Lastly, Indian economy is growing at a much higher rate than what RBI expected.

These are the data points showing us that we are near bottom levels in Indian equity market and probably we can get some improves in next six months from debt and equity market. Lastly, I have always believed that Trump has a pattern. When he came in 2016-18, at that point of time, he said, I'm going to make dollar weaker.

That time also dollar went weaker. This time also dollar went weaker. At that time, he said, I'm going to put tariff.

Same thing he repeated in this second term also. If we go back to 2018, just before mid-term election, he said Iran will be allowed to export for next 180 days, as a result of which crude oil prices have fallen drastically by 15 to 20 percent between 3rd November 2018 till end of December 2018. Whether the history will repeat this time, higher chances that some kind of deal or arrangement he is going to make between Iran and de-escalation will happen in West Asia war.

If we see all of this factor, there are higher chances that rupee will not be getting weaker the way it has got weaker in last six months. In fact, we are believing that for next six months, the range can be 94.5 to 97. So there are higher chances of appreciation from the current level of 96-30.

Govindraj Ethiraj: Right. Most of the factors that you've pointed out of the four or at least three are external and are to that extent beyond our control. While you're right that oil prices could come down and definitely supply has come back to near pre-war levels, though prices have not.

And maybe that is an indication that prices might come down too. The other factors like foreign portfolio investment or foreign direct investment, all of which determine the rupee's position, are beyond our control, even if they do come back. So what's your sense?

And the question that I started with, which is that FCNR flows were expected to stabilise the rupee to some extent, but it doesn't seem to have happened despite the Reserve Bank's active intervention. So is there a signal in that?

Amit Pabari: Let me give you a context. When FCNR flows were announced, at that point of time, rupee was trading close to 96.5. Today, it is trading near 96.30 kind of level. At that point of time, US yield was trading close to 4.8. Today, it is trading near 5.3. Dollar index was trading near 96-97 level. And right now, dollar index is trading close to 100-150. So basically, dollar got stronger. Yields have moved significantly higher.

Despite that, rupee is still trading near 96.30-96.50. So on a relative basis, although number-wise, we are still above 96 level, but on a relative basis, we have done better.

Govindraj Ethiraj: Okay, so when you talk to companies who are either exporting or importing, what's the sense that you're getting in terms of how are they managing their flows or how are they preparing to hedge or manage their future receivables or incomes?

Amit Pabari: Between 96.20 to 96.50, we are suggesting exporters that they should increase their hedging on the export side. And for importers, we are telling them that they should not be covering aggressively. There will be opportunities which they will get close to 95.50 where they can go and hedge.

Govindraj Ethiraj: Got it. Amit, thank you so much for joining us.

Amit Pabari: Pleasure is mine.