India: Rupee to soften after RBI unscheduled cut – TDS

The Reserve Bank of India (RBI) unscheduled cut amid sharp slide in activity, economists at TD Securities report. The USD/INR pair saw small losses after the announcement, trading at 75.7750 at the time of writing.

Key quotes

“RBI cut its benchmark repo rate by 40bp to 4% in an unscheduled move, with a 5-1 vote (1 voted for 25bp cut), while maintaining an accommodative stance.”

“Timing and size of the cut reflects sharp intensification of economic pressure amid an extended lockdown (next scheduled meeting 5 Jun); RBI appears to favour easing when not expected for maximum impact. [...] RBI now sees growth for FY 21 falling into negative territory. We concur.”

“RBI sees headline inflation remaining firm in H1 (Apr-Sep) before softening. We don't think this will stand in the way of further easing in the months ahead given the priority on growth and better CPI outlook after H1.” 

“INR weakened, but that also partly reflected regional FX pressures. We expect INR to underperform in the weeks ahead.”