RBI: Easing cycle not over yet – UOB
|Barnabas Gan, Economist at UOB Group, gives his views on the latest RBI meeting.
Key Quotes
“The Reserve Bank of India (RBI) kept its policy repo rate unchanged at 4.0%, surprising market estimates for a 25 basis point cut. Note that RBI had previously reduced its policy repo rate by 40 basis points to 4.0% in an unscheduled monetary policy meeting on 22 May 2020. RBI has already reduced its benchmark rate by a total of 115 basis points in 2020.”
“RBI retained its “accommodative” stance as highlighted in the press release. This suggests that there remains room for more rate cuts in the year ahead. This is coupled with RBI governor Das’ comment that “space for further policy action is available”.
“The choice to keep rates unchanged is led by the expectation for “inflation to stay elevated in 2Q FY2021”, and upside risks to inflation pressures are on the table given disrupted food supplies and high fuel costs.”
“On the back of growth headwinds and a lacklustre external environment, we continue to expect RBI to stay accommodative in the year ahead, with a likelihood for policy-makers to deliver another 50 basis points of rate cut to bring the benchmark rate to 3.50% by year-end.”
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