Citibank anaylsts predict a 50 bps rate cut by the Reserve Bank of India, if forecasts materialize, after the bank lowered inflation projections on Wednesday:
- Change in inflation forecast opens up scope for 50bps cut
- RBI left policy rates unchanged today while announcing some macro prudential measures (lowered SLR by 50bps to 20% of NDTL, relaxed housing loan risk weights)
- The RBI expects H1 FY18 CPI in the range of 2-3.5% rising to 3.5-4.5% in H2 with evenly balanced risks
- Even the GVA forecast for FY18 has been revised down by 0.1ppt to 7.3%, similar to our projection of a slower growth, low inflation scenario
- Factoring in a neutral real rate of 125-175bps, this opens the space for 50bps cut in Repo, if RBI forecasts do materialize
- We are mindful of the event risks over the next 2 months, but in our assessment the next two CPI prints before the August policy (sub 3%) is unlikely to disappoint RBI and create condition for a 25bps rate cut in August.