RBI Watch

RBI Watch

Policy to remain loose for a long time yet

We agree with financial markets and the analyst consensus that policy rates will be left on hold at the conclusion of the RBI’s upcoming MPC meeting on 4th June, particularly given that the worst of the current virus wave now appears to be over. But any recovery will remain fragile, especially while the vaccine rollout remains stuck in first gear. So even as some EM central banks look to begin normalising policy later this year, the RBI is likely to keep rates unchanged for a long while yet.

27 May 2021

RBI Watch

RBI unlikely to follow its EM peers

EM monetary policy has turned decidedly more hawkish in recent weeks. But, with a renewed surge COVID-19 infections a downside risk to India’s recovery, we don’t think the Reserve Bank will be joining the EM rate-hiking club in its policy meeting next week or any time soon. Another key point of interest will be the government’s proposals for the RBI’s inflation-targeting framework. Both band widening and shifting the focus to core inflation have been suggested, but we don’t expect any changes.

29 March 2021

RBI Watch

Don’t rule out a rate cut

Financial markets and analysts appear convinced that policy rates will be left on hold at the conclusion of the MPC meeting on Friday 5th February, but we aren’t so sure. We think the recent sharp drop in headline inflation could be enough to trigger a 25bp rate cut. Beyond the coming meeting, we also think that markets are too hawkish in pricing in modest rate hikes over the next 12-18 months.

27 January 2021
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RBI Watch

Policy will remain loose for a long time to come

We agree with financial markets and the consensus that India’s policy rates will be left unchanged at the conclusion of the MPC meeting on Friday. Further ahead however, we think that markets are wrong to expect rate hikes within the next 12-18 months, despite the growing likelihood of a rollout of an effective vaccine by then. In fact, on balance, the RBI is more likely to loosen policy a little further over the coming months as the COVID-19 restrictions that have pushed up core inflation get scaled back.

30 November 2020

RBI Watch

Loosening cycle is not over yet

We agree with market and analyst expectations that the Reserve Bank’s new-look MPC will keep rates on hold at the conclusion of its meeting on Thursday 1st October. But with inflation set to drop sharply and the growth outlook dire, we remain non-consensus in expecting a resumption of the easing cycle over the coming months.

RBI Watch

Tepid recovery to prompt further easing

The Reserve Bank of India (RBI) has been emphatic in its response to the coronavirus crisis but, given the severity of the economic downturn and signs that the post-lockdown recovery is stalling, monetary policy is likely to be eased again at the upcoming MPC meeting which concludes on Thursday 6th August. And the easing cycle may still have a little further to run beyond that

RBI Watch

Stepping up the coronavirus response

The RBI has so far taken only piecemeal steps in its response the coronavirus outbreak. But with the virus now spreading rapidly in India and with containment measures set to take an enormous economic toll, we think that monetary policy will be loosened significantly at the upcoming MPC meeting which concludes on Friday 3rd April. A 50bp cut in the repo rate to a record-low 4.65% is likely, and the rarely-adjusted cash reserve ratio may also be trimmed.

RBI Watch

Easing cycle at an end

Policy rates look set to be kept on hold at the conclusion of the RBI’s meeting on Thursday 6th February. Further ahead, the analyst consensus still expects a resumption in the easing cycle once food inflation has dropped back. We disagree. In fact, with the effect of past stimulus likely to be felt gradually over the coming months and core inflation set to rise, we expect the RBI to switch to tightening mode by the end of the year.

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