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6 Feb 2015
Expect RBI to cut rates again in April – Nomura
FXStreet (Barcelona) - Research Analysts at Nomura, give the inflation and policy outlook for India, anticipating CPI to stabilise around 5.0-5.5% in 2015, further expecting RBI to cut rates by 25bp in April.
Key Quotes
“The inflation outlook remains benign due to both external (low commodity prices) and domestic (low rural wages, high real interest rates, low minimum support prices) factors.”
“The lagged impact of lower commodity prices could cause CPI inflation to undershoot in H1 2015, but we believe that the sharp pace of disinflation witnessed in 2014 is coming to an end and CPI inflation will stabilise around 5.0-5.5% in 2015.”
“The quarterly path is volatile: an adverse base effect is likely to push up CPI inflation from 5.0% y-o-y in December to 5.5-6.0% in Q1, before it moderates back to 5.0% in Q2 and Q3, before rising again to 5.5-6.0% in Q4.”
“The steep fall in commodity prices will also likely push WPI inflation into negative territory, although only briefly, in our view.”
“We expect the Reserve Bank of India (RBI) to cut the repo rate by 25bp, to 7.5%, on 7 April.”
“Thereafter, we expect it to remain unchanged through 2016 as CPI inflation should stabilise around current levels in the medium term, growth should gradually recover and real interest rates remain high (~2%) to ensure macro stability.”
“The government remains committed to its fiscal deficit target of 4.1% of GDP in FY15.”
“Given the tax collection shortfall, we expect sharp expenditure cuts in the current quarter, which will affect the quality of fiscal consolidation and likely be a drag on growth.”
Key Quotes
“The inflation outlook remains benign due to both external (low commodity prices) and domestic (low rural wages, high real interest rates, low minimum support prices) factors.”
“The lagged impact of lower commodity prices could cause CPI inflation to undershoot in H1 2015, but we believe that the sharp pace of disinflation witnessed in 2014 is coming to an end and CPI inflation will stabilise around 5.0-5.5% in 2015.”
“The quarterly path is volatile: an adverse base effect is likely to push up CPI inflation from 5.0% y-o-y in December to 5.5-6.0% in Q1, before it moderates back to 5.0% in Q2 and Q3, before rising again to 5.5-6.0% in Q4.”
“The steep fall in commodity prices will also likely push WPI inflation into negative territory, although only briefly, in our view.”
“We expect the Reserve Bank of India (RBI) to cut the repo rate by 25bp, to 7.5%, on 7 April.”
“Thereafter, we expect it to remain unchanged through 2016 as CPI inflation should stabilise around current levels in the medium term, growth should gradually recover and real interest rates remain high (~2%) to ensure macro stability.”
“The government remains committed to its fiscal deficit target of 4.1% of GDP in FY15.”
“Given the tax collection shortfall, we expect sharp expenditure cuts in the current quarter, which will affect the quality of fiscal consolidation and likely be a drag on growth.”