A man walks past the Reserve Bank of India head office in Mumbai. Photo: Reuters/Danish Siddiqui

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.

Asia Times Financial is now live. Linking accurate news, insightful analysis and local knowledge with the ATF China Bond 50 Index, the world's first benchmark cross sector Chinese Bond Indices. Read ATF now.