RBI monetary policy stance to turn softer in August

In its previous round of policy announcement on 2 June, the Reserve Bank of India (RBI) had lowered the repo rate by 25bp, as expected, but had maintained a cautious policy stance. The RBI will announce its monetary policy decision on 4 August.

"The central bank will hold the key policy rates unchanged next week. However, the RBI's monetary policy stance is expected to turn softer in August as the probability of another 25bp repo rate cut later in H2 2015 is rising", says Barclays.

The three key risks that the central bank had highlighted were

1) Below-normal monsoon rains; 
2) Firming crude oil prices; and 
3) Volatility in external environment. 

While these risks cannot be completely ignored, the developments on most of these fronts since early June had been somewhat reassuring.