India: MPC turns dovish – Standard Chartered

Analysts at Standard Chartered point out that the India’s Monetary Policy Committee (MPC) kept its policy rate on hold at 6.5% in an unanimous decision and in line with the market expectations, while maintained its calibrated tightening stance.

Key Quotes

“Two factors added a dovish tilt to the policy decision. First, the MPC significantly revised down its inflation projections for November 2018-September 2019; second, the Reserve Bank of India (RBI) governor stated that rate cuts could be back on the table should inflation print in line with MPC projections.”

“The latter increases the probability that the MPC could stay on prolonged pause if not cut (assuming some of the upside risks to its inflation projection materialise). Some rates market participants would expect the MPC’s stance to move to neutral, possibly over the next two meetings, if the current inflation momentum continues.”

“Given the MPC’s inflation outlook and dovish tilt we acknowledge the risks to our current call of 50bps of rate hikes in FY20 (year ending March 2020) and our CPI projection of 4.9% over the same period.”