HALISTER1: ROUNDUP: RBI’s Surprise Cut Supports Rupee, May Not Signal More

ROUNDUP: RBI’s Surprise Cut Supports Rupee, May Not Signal More

(Bloomberg) -- Indian rupee gains after RBI unexpectedly cuts interest rate in Governor Patel’s first policy meeting.
  • Central bank reduced benchmark repurchase rate by 25 bps to 6.25%; only 17 of 39 economists surveyed by Bloomberg predicted a reduction
  • First meeting of new monetary policy committee and decision was unanimous
  • RBI says cut is consistent with aim of reaching CPI of 5% by Q4 of fiscal 2017; cites concerns about weakness in world trade and slowdown in industrial production
  • Yield on 6.97% bonds due Sept. 2026 little changed at 6.771%
  • Rupee up 0.1% at 66.5375; rose as much as 0.3% after decision
  • ANZ (Khoon Goh, head of Asia research)
    • Slower inflation provided scope for RBI to deliver surprise rate cut, with backdrop of weaker global economic growth outlook
    • Rate cut will lead to more stock inflows, supportive of rupee
    • Will be limit to how far rupee can rally
    • Key support for USD/INR is around 66.2 with resistance at 67.1; RBI seems content to keep USD/INR within this range
  • Nomura (Vivek Rajpal, interest-rate strategist)
    • Lower bond yields won’t hold once market moves past initial reaction to cut
    • RBI statement says risks on inflation are tilted to upside, though less so than expected in June & Aug. policy statements
    • “Market cannot assume another rate cut unless we start talking about downside risk to inflation”
    • Bonds should consolidate; 10-year yield at 6.70-80% by end-Dec.
  • DBS (Radhika Rao, economist)
    • Indian bonds lost ground soon after RBI cut possibly because accompanying rhetoric was relatively neutral rather than dovish
    • RBI reiterated March inflation target at 5.0%, but with modest upside risks
    • Stealth easing via pro-liquidity stance will continue to help markets deal with foreign currency non-resident maturities and ensure policy transmission remains on track
  • OCBC (Emmanuel Ng, economist)
    • RBI cut “net positive” for INR near term and shouldn’t hinder recent recovery in net inflows of portfolio capital
    • Cut doesn’t necessarily imply a string of more in future; RBI will probably continue to watch data flow for future moves
  • Trivantage Capital (CIO Nikhil Johri)
    • Scope for one or more rate cuts in the next six months
    • “Interesting part is that it is an unanimous decision by the panel; a 6-0 verdict in favor of a rate cut”
    • “Overwhelming feeling” that inflation is expected to remain around 5% this fiscal year
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Emmanuel Ng (Oversea-Chinese Banking Corp Ltd)
Khoon Goh (Australia & New Zealand Banking Group Ltd)
Nikhil Johri (Trivantage Capital Management India Pvt Ltd)
Radhika Rao P (DBS Bank Ltd)
Vivek Rajpal (Nomura Holdings Inc)

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