BofAML Thinks RBI May Cut Rates In August, Here’s Why

Most brokerages expect the Reserve Bank of India told hold its status quo policy this year — except Bank of America Merrill Lynch Global Research. The international research firm foresees possibility of a rate cut in the next policy meet in August citing the central bank’s neutral stance.

The fundamentals point to a benign inflation outlook: weak growth, tight liquidity, normal rains, BofAML said in a note.

The six-member monetary policy committee of the RBI left interest rates unchanged at its first meeting of the new financial year yesterday, indicating that the economy is finely balanced between a pick-up in growth and a rise in inflation. The MPC has also maintained a neutral stance on monetary policy.

Also, for 2018-19, the MPC has reduced its inflation forecast marginally. It now expects consumer price index-based inflation in the first half of the year at 4.7-5.1 percent, and inflation in the second half of the year is seen at 4.4 percent.

Here is what other brokerages had to say about the RBI Policy:

Nomura

• Downward revision to inflation forecasts a positive surprise.
• Lower inflation projection rules out any imminent tightening.
• Expect repo rate to be left unchanged throughout 2018.
• Coming policy meetings still prone to higher risk of a shift in the policy status quo.

Citi

• Need for policy action in FY19 to be minimal if RBI’s new CPI forecasts do materialise.
• CPI projections could potentially be revised upwards in the August policy.
• RBI move in June policy ruled out.
• Current 10-year benchmark bond yields can drift towards 7 percent.
• Sharp rally in Indian fixed income beyond the initial exuberance may, thus, be hard to sustain given persisting medium term challenges.

Morgan Stanley

• Don’t expect a significant overshoot of inflation relative to the RBI’s target.
• MPC’s assessment of the inflation trajectory for H2FY19 to be key in determining its response.
• Maintain view that MPC will hike rates in Q4CY18.

Macquarie

• Slight dovish read of the statement.
• Continue to expect rates to be on hold in 2018.
• Bond yields likely to be range bound (around 7.0-7.3 percent).
• Limited room for yields to decline further.

Edelweiss

• Continue to expect a pause in the rates going forward as well.
• Key monitorable lies on the external front where there is a risk of global rates moving higher.

Also Read: What Experts Made Of The April Monetary Policy Review