India: RBI primed to ease - TDS

Analysts at TD Securities (TDS) expect the Reserve Bank of India (RBI) to add to the 50bps of easing already implemented this year by cutting its repo rate by 25bp to 5.75% at its meeting on June 6. 

Key Quotes:

“We think that a combination of low inflation especially easing of core inflation pressures, together with slowing activity, will push the RBI to cut.”

“We expect CPI to continue to edge higher over the coming months to around the middle of the RBI’s inflation target band (4% +/-1%) but the expected trajectory is not likely to get in the way of a rate cut this month. The easing of both core and core-core inflation pressures will give the RBI confidence in this respect.”

“High frequency indicators have softened. Data at the end of last week revealed that GDP came in weaker than expected at 5.8% y/y in Q1 19. The RBI predicts GDP growth at 7.2% for the fiscal year ending Mar 20, with the pace of activity forecast to accelerate over the year. However, risks to the outlook have risen given the deterioration in external conditions and intensification of trade tensions. As such we expect the RBI to revise down its growth forecasts.”