India: RBI likely to hold its fire – TDS

Research Team at TDS, suggests that the RBI announces the June bi-monthly monetary policy decision today, but uncertainty about the outcome is little this time.

Key Quotes

“In line with the consensus, we continue to expect rates on hold, with the benchmark repo steady at 6.50% and the CRR at 4.00%. In April, the RBI increased the reverse repo rate by 25bps to 6.00%, while cutting the repo by the same amount to 6.50%. This was part of a broader effort to narrow permanently the spread between the two rates. We think this is unlikely to happen again today. So we do continue to expect a further and final 25bps rate cut in this cycle, but not before year-end, and anyway not before it becomes clearer that the 4±2% inflation target for March 2017 is attainable.

For now, CPI inflation remains well within the upper half of the 4-6% target range, while the CPI run rate has been fairly stable in the 4.5-5.5% range over the past three months. This means that in the absence of external or domestic price shocks, including an unlikely third consecutive year of below-average rainfalls, inflation should not deviate much from the 5% level.”