Further policy loosening on the cards

Amid signs of a recent slowdown in economic growth, the Reserve Bank of India cut interest rates at a third consecutive meeting in early June, taking the repo rate to its lowest since 2010. What’s more, the change in the official policy stance from “neutral” to “accommodative” suggests that further easing is likely. We are expecting another 25bp cut in August, which would bring the repo rate down to 5.50%. Further cuts beyond August are a growing possibility. Prospects for fiscal policy have also shifted over the past month as new Finance Minister Nirmala Sitharaman is likely to prove less of a hawk than her predecessor Arun Jaitley. The fiscal deficit target for FY19/20 may now be relaxed slightly when Ms Sitharaman presents the full budget on 5th July.