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According to Brian Tan, Research Analyst at Nomura, the October monetary policy committee (MPC) meeting presents a dilemma for the Reserve Bank of India (RBI) as risks to CPI inflation from a weaker currency and higher oil prices have emerged.

Key Quotes

“Given the inflation-targeting mandate, frontloaded rate hikes and risks to future growth from tighter financial conditions, we expect the policy repo rate to be left unchanged at 6.50%, although we acknowledge that this is a close call (Consensus: 25bp hike).”

“We expect the RBI to maintain its GDP growth projection of 7.4% y-o-y in FY19, but revise down its inflation projection to 4.0-4.5% in H2 FY19 (from 4.8%). For FY20, we expect the RBI to project GDP growth at 7.5% and inflation at 4.6%.”

“We expect the neutral policy stance to be retained, but a hawkish commentary given emerging inflation risks.”

“Importantly, we will look for any measures to stabilise INR, such as an FX swap window for oil companies.”