New governor to lay groundwork for policy loosening

We agree with financial market expectations and the analyst consensus that interest rates will stay on hold at the conclusion of the RBI’s meeting on 7th February – the first under the stewardship of Governor Shaktikanta Das. But Mr Das is likely to use the meeting to lay the groundwork for policy loosening over the coming months. To that end, we suspect that the official policy stance will change and the hawkish rhetoric of his predecessor will be dialled back in the policy statement. This could pave the way for a rate cut as early as at the following meeting in April. In our view, looser policy at this stage of India’s economic cycle would be a mistake, and would also heighten concerns over the independence of the central bank.