INSUBCONTINENT EXCLUSIVE:
Inflation cooled to an 18-month low of 2.19 per cent in December.The Reserve Bank of India (RBI) will change its stance to 'neutral' next
month and cut interest rates in June at the latest, according to a Reuters poll of economists pointing to an extraordinary u-turn in policy
Just a month ago, economists predicted rates would start rising next quarter
But they have flipped that outlook in the first survey taken since RBI Governor Urjit Patel's sudden resignation on December 10."The
policy outlook has been muddied by the resignation of Urjit Patel
His replacement, Shaktikanta Das, will likely lend a sympathetic ear to the government's wishes to keep policy loose," said Shilan Shah,
senior India economist at Capital Economics.Growth, while expected to cool compared with a survey three months ago, is still likely to
remain stronger than in China, Asia's biggest economy.Uncertainty over the outcome of a national election in May is see as the main
downside risk to Asia's third-largest economy.Over two-thirds of the 65 economists polled between January 21-23 said the RBI would hold
its repo rate at 6.50 per cent at its next policy review on February 7.But nearly every respondent to an additional question said the
central bank would change its policy stance to 'neutral' from 'calibrated tightening' - a bias it only just adopted in October, which at the
time surprised many analysts and traders.With weak inflation and the sudden change in RBI's leadership, over 90 per cent of 57 common
contributors with last month's poll who predicted at least one hike next fiscal year are now forecasting either a rate cut or no change
over the same time period."Our concern is that policy under Das will be kept looser than is appropriate for the benefit of the government,"
"That will lead to a partial reversal of the success the central bank has had in reining in price pressures over the past five years, and
lead to a permanent rise in inflation."Inflation cooled to an 18-month low of 2.19 per cent in December but is expected to average 4.3 per
Core consumer inflation remained elevated at 5.7 per cent last month.The RBI's mandate is to control price pressures, which historically
have been difficult to tame in India.But Prime Minister Narendra Modi's governing Bharatiya Janata Party - which in 2014 won the first
outright parliamentary majority in 30 years - has made clear it prefers stimulative monetary policy ahead of national elections in May.The
BJP lost three major state elections at the end of last year, largely due to angst among rural citizens about low crop prices and rising
costs."We will be studying Governor Das' policy bias carefully over the near-term and note that the risk of India returning to a
high-inflation era has risen," said Tuuli McCully, head of Asia-Pacific economics at Scotiabank.The RBI will by March transfer an interim
dividend of Rs 30,000-Rs 40,000 crore to the government, about three or four times the amount paid last year, according to three sources
with direct knowledge of the matter.The country's 2018/19 fiscal deficit is forecast to be 3.5 percent of gross domestic product compared
to a previous goal of 3.3 per cent, according to the poll.Economists predict India's growth this fiscal year and next will be 7.3 per
cent, slower than predicted three months ago and lower than the International Monetary Fund's projection of 7.5 per cent in fiscal year
2019-2020.Growth in most major economies is expected to slow this year while the United States and China battle over trade and as global
financial conditions tighten.
