INSUBCONTINENT EXCLUSIVE:
India (RBI) is expected to cut interest rates again next quarter, according to a Reuters poll of economists, with a slim majority
forecasting policy easing to occur before the general election in May.A Reuters snap poll taken immediately after Thursday's policy review
- where the RBI unexpectedly reduced interest rates by 25 basis points - showed the central bank will make the same move next quarter
That would take the RBI's repo rate to 6.00 per cent, its lowest since the middle of last year.Another easing would be welcome news for
Prime Minister Narendra Modi's government, which wants to boost growth and lift lending after delivering a populist interim budget in an
the national election, just over half, or 30 of 54 economists said yes."RBI's Governor Shaktikanta Das' remark that 'there is room to cut'
suggests this is not a one and done easing," said Radhika Rao, economist at DBS Bank
"We revise our call to include a 25 basis points cut in April, before rates stabilise."While inflation data for January due to be released
early next week is forecast to have nudged up slightly, it is still expected to remain below target for the sixth straight month, supporting
the central bank's U-turn in policy from a months-long tightening bias.But the disparity between core inflation, which is running closer
to 6 per cent, and the headline figure remains wide."Given core-inflation is already quite high, we see headline inflation rising sharply
towards the end of the year
So, what he (the RBI governor) has done, is cut interest rates in response to a temporary fall in the headline rate, which at best seems
quite short-sighted," said Gareth Leather, senior Asia economist at Capital Economics."He is under a lot of political pressure to cut
monetary policy rates and that is the reason he has done it."While some economists did argue that the key driver of expectations for a
further rate cut ahead of the election is pressure from the government, about 85 per cent of respondents who answered a separate question
said the one just delivered was not a mistake."The rate cut was due, but the timing was a surprise
They front-loaded the rate cut, which was the surprise element
With downside risks to growth, and inflation well within the comfort zone of the RBI, and real interest rates high, a rate cut was
expected," said Upasna Bhardwaj, senior economist at Kotak Mahindra Bank.After the predicted follow-up cut next quarter, the RBI Monetary
Policy Committee (MPC) was forecast to keep interest rates on hold at least until the fiscal year starting April 2020.That suggests it is
not the start of an easing cycle - something over 55 per cent of economists concurred with in response to an additional question."A decisive
change in tone, with even the perpetual (MPC) hawk - Dr
Michael Debabrata Patra - joining the rate cut camp, gives further credence to our view that one more cut is on its way," said Madhavi
Arora, economist at Edelweiss Securities."However, further easing beyond April will see the bar set a tad higher."In recent weeks, other
major central banks have also sharply reversed policy in the face of rising growth risks, with pressure on businesses most notably stemming
from a US-China trade war
That has prompted the US Federal Reserve, the European Central Bank and the Reserve Bank of Australia, to switch to a dovish
stance.Referring to that policy shift by global central banks, Vishnu Varathan, head of economics and strategy for Asia at Mizuho Bank said:
"The RBI may prove to be famously prescient on this one and may well be ahead of the curve
It is not a curve I want to see."
