India Fuel-Price Cut Alters Inflation View Before RBI Decision

(Bloomberg) -- India’s central bank isn’t averse to surprises. Several times in the past, it has moved against market consensus to tinker with interest rates or the policy stance based on its reading of the economic data.

This time there’s another factor to think about. Hours before the Reserve Bank of India decides rates Wednesday, the government cut a domestic levy on gasoline and diesel, which analysts estimate will directly lower consumer-price inflation by 8-9 basis points. While the move will hit government finances at a time of slowing growth, many economists say it won’t push the RBI to ease policy.

However, if Governor Urjit Patel’s six-member monetary policy committee wants to revert to an "accommodative" stance from "neutral," it could use the excise cut as a reason to do so, said Anjali Verma, an economist at PhillipCapital India Pvt.

“If there is a cut, it would be viewed positively by equity market as it would be recognition of growth slowdown and a step towards normalizing that,” said Harsha Upadhyaya, chief investment officer of equities at Mumbai-based Kotak Mahindra Asset Management Co.