Reserve Bank of India likely to stand pat in December, inflation outlook to be revised down

The Reserve Bank of India had surprised by standing pat in October. Since then rate hike bets continue to be pared, noted DBS Bank in a research report. Inflationary pressures are lowering, mainly owing to food, which led October inflation to decline to 3.3 percent year-on-year as compared with target of 4 percent, with a rising possibility that November’s would be below 3 percent.

The recently released third quarter growth print saw the economy grow at a slower pace of 7.1 percent as compared with the second quarter’s 8.2 percent, widening the output gap. There is transitory reprieve on the external front, with rupee strengthening more than 4 percent last month and oil prices down by a third between October and November.

“With real rates already at elevated levels, there is little urgency for the RBI to tighten policy. We look for a pause this week and rest of FY19, with a downward revision in inflation (prevailing trend is 50-60bps below the central bank’s forecast) and lower full-year growth estimate”, added DBS Bank.