Halister News

(Bloomberg) -- RBI may maintain rates while signaling a continued accommodative monetary stance at its policy meeting tomorrow, economists say.

• RBI may want gauge the effect of recents rate cuts and also wait to see how the monsoon season develops
• The central bank is forecast to keep the repo rate steady at 6.5%, according to all 19 economists surveyed by Bloomberg
• Meeting comes amid increased speculation about whether RBI Gov. Rajan will get an extension when his first term ends in early Sept; markets will watch Rajan on the issue during a press conference at 11am local time

• KEY MACRO PARAMETERS
  • 1Q growth beat estimates at 7.9% y/y; 7.2% prior quarter
  • CPI quickens more than estimates; consumer prices rose 5.39% in April vs 5.05% est
  • Wholesale prices rose for first time in 18 months in April
  • Monsoon rain seen best since 1994 as La Nina set to emerge
  • FY16 budget deficit at 5.32t rupees, 99.5% of target
  • RBI reduced its policy rate by a larger-than-expected 125 bps in 2015, yet the 12-month lending rate fell 38 bps on average during the period: Bloomberg Intelligence

• FACTORS TO WATCH IN RBI STATEMENT:

• Firmer inflation indicators:
• Recent uptick in inflation warrants a wait-and-watch attitude, ANZ writes in note dated June 3
  • RBI in no hurry to ease based on above-normal monsoon forecast
  • RBI may also want a better sense of magnitude and timing of impact from pay panel recommendations on inflation

• Guidance
• RBI likely to retain easing bias but won’t cut rates until later this year, Moody’s Analytics says in note dated June 2
  • Better monsoon forecast should keep food inflation at bay and help RBI cut rate later in the year
• RBI has room to cut another 25 bps in FY17, but it is unlikely to happen in this policy meeting, India Ratings & Research says in note dated June 3

• Liquidity
• Investors will keenly watch RBI’s assessment about money market liquidity, Deutsche Bank says in note dated June 3
  • RBI’s OMOs have helped to some extent but there is long way to go before liquidity can be brought to neutral
  • Steady fall in nominal deposit growth rate and sharp spike in currency-in-circulation growth complicating task
• NOTE: RBI said in its April policy that it will transit the banking system to neutral liquidity from deficit for better monetary transmission; $26b of deposit repayments to overseas Indian are due between Sept-Nov which may create liquidity mis-matches