India: MPC minutes strengthen case for a rate cut: Analyst – 22 Jun 2017

  • Minutes of the RBI meeting in Jun 17 reveal more flexibility among MPC members and the central bank might deliver a 25 bps rate cut in its Aug 17 review, said analysts.
  • The Reserve Bank of India’s monetary policy committee welcomed data showing inflation easing below its target, but wanted more assurance the trend would continue before deciding whether to lower interest rates, minutes from its meeting on 21 Jun 17.
  • The RBI voted 5-1 to keep the repo rate at 6.25% but issued a slightly less hawkish statement after consumer inflation eased to 2.99% in Apr 17, below its 4% target. Ravindra Dholakia was the lone dissenter, arguing for a 50 basis point cut to the repo rate after inflation had eased markedly.
  • The rest of the panel members, including Governor Urjit Patel, wanted more evidence that inflation would ease, while expressing concern that consumer prices would accelerate in 2H17.
  • According to global financial services major HSBC, the minutes of the MPC meeting show that the members are more flexible in their outlook and ready to be convinced by lower inflation prints over the next few months.
  • The global brokerage said inflation expectations have fallen into a virtuous cycle and are likely to stay there, comfortably anchoring inflation rate at the 4% target “unless some other factors turn sour enough to yank them out”.
  • Meanwhile, Nomura in a research note said the Aug 17 decision “appears to be a close call”. According to Nomura, there is 40% probability to a 25 bps rate cut in Aug 17.
  • The upcoming factors that are likely to affect the Aug 17 policy decision include industrial output growth, CPI inflation and distribution of Jul 17 rains, Nomura said, adding that lower oil prices, if sustained, would increase the MPC’s confidence around benign inflation.

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