ag亚游官网:India Economics Weekly:RBI’s dilemma

ag亚游官网,ag亚游官网:India Economics Weekly:RBI’s dilemma。    The arguments in favor of cutting rates are straight forward. With
inflationexpected to average around 4% in FY18, maintaining policy rate
at current levelof 6.25%, would imply real rates of 2.25%, which is
higher than the central bank’srevealed preference of maintaining real
rates within the 1.5-2.0% range. Thereforea 25bps repo rate cut would
help to bring down real rates within RBI’s preferredrange, assuming CPI
inflation averages around the 4% mark. While the mathssuggest that RBI
probably has some more room to cut rates, there are otherfactors which
can complicate the rate cut decision. We highlight three factors:

MPC minutes, the bond market had started to price in a 25bps rate hike,
onlyto reverse a few weeks later, supported by lower than anticipated
CPI inflationprints, disappointing Jan-March’17 growth outturn and
renewed weakness inglobal oil prices. A normal monsoon forecast from the
IMD has added to thecheer, while the item-wise tax rates related to GST
have ssuaged fears relatedto potential inflationary risks associated
with the landmark indirect tax reform.Indeed, the bond market is
currently pricing in a 25bps rate cut, with manymarket participants
expecting RBI to ease in the next policy itself (2 August).

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