Key drivers of RBI rate cut in September

The RBI noted that "Significant uncertainty will be resolved in the coming months, including the likely persistence of recent inflationary pressures, the full monsoon outturn, as well as possible Federal Reserve actions. As the Reserve Bank awaits greater transmission of its front-loaded past actions, it will monitor developments for emerging room for more accommodation." 

Indeed, while the RBI has lowered the repo rate this year (75bp during H1 2015), it has of late, emphasised three key risks: 
1) Below-normal monsoon rains; 2) Uncertainties around crude oil prices3) Volatility in the external environment. 

"Further, given India's generally sound macroeconomic parameters, the impact of any Fed liftoff on India will likely be relatively limited. The initial impact of a potential Fed hike, if indeed it takes place in mid-September - on INR assets should also be visible before the RBI's end-September policy meeting", says Barclays. 

Accordingly, a 25bp repo rate cut in September is expected, unless the monsoon disappoints during September-October.