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Mitul Kotecha, senior emerging markets strategist at TD Securities, notes that the Reserve Bank of India has cut its policy rate by 25% to 5.15% and maintained an accommodative stance, in line with  TD’s  and consensus expectations.

Key Quotes

“This was the fifth straight cut from the RBI. There was a significant minority looking for a bigger cut to 5.00% (average estimate on Bloomberg 5.11%). 5 out of 6 MPC members voted to cut to 5.15%, with one voting to cut by 40bp. Note that at the  last meeting in August, RBI cut the repo rate by a bigger than expected 35bp.”

The RBI highlighted the further weakening in global economic activity, with uncertainties from geo-political risks. They noted the weakening in several high frequency indicators and softening exports prospects while noting that they expect the impact of past easing and recent government measures to feed into domestic demand. Nonetheless RBI cut its growth forecasts, which was also expected after the very weak Q2 2019 (Q1 FY 2019-20) GDP outcome (5.0% y/y). The cut was severe, with the RBI now predicting FY 2020 growth at 6.1% from 6.9% previously. We concur with the downside risks to the economy.”

“RBI revised slightly higher its CPI projection to 3.4% for Q2 FY 2019-20 while retaining its forecast at 3.5-3.7% for H2 FY 2019-20 and 3.6% for Q1 FY 2020-21, with risks evenly balanced. We see slightly higher risks to inflation over coming months; our forecasts predict inflation of just over 4% in H2 FY 2019-20.”

After 135bp of easing in this cycle the RBI may wish to wait to assess the impact of past rate cuts before easing again. We maintain our view that the next move is likely in Q1 2020.”