Rate cut not a foregone conclusion

Financial markets and a large majority of analysts are braced for a rate cut at the Reserve Bank of India’s policy meeting next week. But the RBI has developed a taste for springing surprises recently, going against the analyst consensus at four out of the last five policy meetings. Inflation is low, but there are also signs that it is about to rebound. Economic data since the last meeting have generally been positive and the continued roll-out of loan waivers for farmers raises the spectre of previously-unanticipated fiscal loosening. In these circumstances, we believe that rates will be kept on hold.