RBI on pause, for now – Nordea

According to Nordea Markets analysts, the RBI left the repo rate unchanged after a series of rate cuts in a surprise move, hoping for further transmission of this year’s rate cuts to the weakening economy.

Key Quotes

“The repo rate was left at 5.15% today, in a unanimous decision to take a pause after five meetings of rate cuts, against expectations of a 25bps cut.”

“Spreading worries about the downturn in the Indian economy, GDP growth came down to a new six-year low of 4.5% y/y in the third quarter. This is well below its potential and not enough to provide jobs for the rapidly growing population, illustrating Modi’s failure to redeem his election promises.”

“Government action has fallen short to boost domestic demand and has caused India’s credit outlook to be downgraded to negative by Moody’s last month.”

“Food inflation rose to a 40-month high of 6.93% in October due to unseasonal rains and disruptions in supply chains, bringing up headline inflation to surpass the medium target range of 4%.”

“The RBI expects food prices to remain high, but some moderation is expected. The decision to keep the repo rate unchanged today is to a large extent based on the RBI seeking greater clarity in the inflation scenario and how it plays out. As clarity will increase in the coming months, Governor Das stated that the next monetary policy statement in February is a better place to take further measures.”

“The move today surprised markets, with the rupee declining to the dollar and the benchmark bond yield rising by 8bps. Stock indexes fell following the decision today.”