Policy rates unlikely to fall any further

The consensus is expecting further, albeit limited, monetary easing in India over the coming months, but we continue to think that the rate-cutting cycle has come to an end. The Reserve Bank of India’s (RBI’s) aversion to financial market volatility means that a rate cut next week would be counter-productive given the recent sell-off in the rupee. Further out, the RBI faces a challenge meeting its medium-term inflation targets, suggesting that the window for further easing has closed.