Standard Chartered Research notes that it expects the Reserve Bank of India (RBI) to leave the policy rate unchanged at 7.5% at its meeting on 7 April, based on the policy statement after its inter-meeting rate cut in March.
- It may consider measures to improve monetary policy transmission. Given our expectation that CPI inflation will average around 5.4% in FY16 (year ending March 2016), and assuming the RBI is comfortable with the real policy rate at 150-200bps, we see scope for another 25-50bps of rate cuts.
- Consecutive inter-meeting rate cuts in January and March have made it difficult to forecast the exact timing of the next rate decision, however.
- The report also notes that almost all market participants expect no change in the policy rate at the coming monetary policy meeting. A minority of market participants expect the RBI to ease liquidity conditions either by reducing the cash reserve ratio (CRR; currently 4%) or by increasing the cap on the liquidity adjustment facility (LAF; currently 0.25% of net demand and time liabilities of the banking system, or c.INR 220bn).
- "We think either would be marginally positive for the rates market, and would lead to the benchmark 10Y India government bond (IGB) yield declining c.3-5bps, and the OIS curve bull steepening."
