RBI: Not as dovish as expected but room for one more rate cut - Standard Chartered

"India’s Monetary Policy Committee (MPC) decision to cut the repo rate by 25bps to 6.0%, maintain its neutral policy stance and assure the market of adequate liquidity was in line with our (and consensus) expectations," point out Standard Chartered analysts.

Key quotes

"However, we were surprised that only four of the six MPC members voted in favour of a cut, similar to the previous meeting. We expected more votes for a cut at this meeting given the benign growth-inflation dynamics. Additionally, some rates market participants (though not us) were surprised that the MPC maintained its neutral stance instead of switching to accommodative despite a downward revision in its FY20 (year ending March 2020) CPI inflation forecast.

"The lower CPI forecast was likely due to the MPC’s Q4-FY19 CPI forecast undershooting by 30-40bps. Based on its half-yearly CPI forecasts, we infer that the MPC expects CPI inflation to average 3.5% in FY20, lower than our current forecast of 4.0%. We now expect a 25bps cut in June (from on hold at 6% previously)."

"In our view, the MPC’s decision and stance are well justified and will anchor market expectations regarding the rate-easing cycle. A rate cut in February (not a consensus expectation), downward inflation surprises and recent measures to inject rupee (INR) liquidity raised expectations of deep easing; indeed, some expected a 50bps rate cut at today’s policy meeting."