More dovish RBI may have to reverse course in 2017

Today’s surprise rate cut by the Reserve Bank of India sends a signal that the new governor and MPC will prioritise growth even at the risk of missing targets for inflation. That’s a break from the more hawkish stance of the previous governor, Mr Rajan, which helped restore the RBI’s credibility. We fear it could backfire, and that the RBI will be forced to reverse course and hike rates in 2017.

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