India: RBI is likely to keep all key rates unchanged - TDS

According to analysts at TDS, the RBI is likely to keep all key rates unchanged today, which means TDS and the consensus expect the repo rate to stay on hold at 6.00% and the CRR at 4.00%.

Key Quotes

“There are clear reasons, however, why the RBI may decide to ease or even just provide a dovish message against a hold. The first obvious one is growth. India’s GDP growth remains elevated by international standards, but figures have decelerated for five consecutive quarters. This begs the question whether recent negative GDP surprises only reflected unreasonable market expectations or, rather, an adjustment towards structurally lower growth rates? Growth would look even weaker without support from government spending and one-off gold purchases. This indicates growing need to stimulate the economy, but we think this stimulus will be fiscal rather than monetary. The second reason is inflation still below the 4% target, but CPI is rising now, and base effects and a quasi-normal but uneven monsoon may add more pressure in the coming months.”

“On balance, we think the RBI will wait and see what the government is up for first, before deciding whether to cut rates again. Should the government unveil plans for fiscal expansion, the RBI will likely stay on hold for the foreseeable future. However, if the government decides to stick to planned budget discipline and targets, we could envisage the RBI easing another 25-50bps over the next 6-9 months.”