RBI monetary policy preview

Reserve Bank of India (RBI) is expected to announce monetary policy decisions at 5:30 GMT tomorrow, which will follow speech from Governor Raghuram Rajan.

After three rate cuts so far this year, market is expecting another rate cut by the central bank. Among 42 economists surveyed by Bloomberg, only 5 are expecting to RBI to maintain current policy, while other expects further cut of 25 basis points to push repo rate at 7%.

RBI governor Raghu Rajan often liken to Paul Volcker of US, who headed FED in battle against inflation in the 1980s.

Mr. Rajan, with his initial tightening has succeeded in taming inflation, which was hovering at 11% (CPI), when he joined office two years back. Inflation in India is now tamed as CPI has just increased by 4% in last 12 months and WPI is in deflationary territory for 10 consecutive months, thanks to lower oil price.

With current inflationary outlook, 25 basis points cut is almost assured from RBI tomorrow, which would help ease domestic monetary conditions.

Only hindrance to policy cut is monsoon, which has been 13% lower this year and might put upward pressure on food.

India's benchmark stock index is currently hovering at 7795, down -0.9% for the day, while INR is trading at 66.12 per USD.