Rate cut not a done deal

Financial markets and a large majority of analysts are braced for a rate cut at the Reserve Bank of India (RBI) policy meeting next week. But, despite the continued damage and uncertainty caused by demonetisation, we don’t think it’s a done deal. The RBI refrained from loosening policy at a more opportune time in December and, since then, the finance ministry has announced a slower pace of fiscal consolidation for FY17/18 than had previously been planned. Meanwhile, inflation looks set to rebound over the coming months. Given this, we think there is good chance that rates will be kept on hold.