The Reserve Bank of India has kept policy rates unchanged, in line with expectations. However, the language and guidance in this August policy is more dovish than the previous policy, says Sonal Varma, executive director and India economist, Nomura Financial Advisory and Securities (India).
In the third bi-monthly monetary policy meet today, RBI governor Raghuram Rajan said: "It is prudent to keep the policy rate unchanged at the current juncture while maintaining the accommodative stance of monetary policy."
Varma says the RBI is in a data dependent mode and the governor's statement is proof that there is room for more rate cut.
However, it may be worth noting that Nomura has a base case for no further rate cuts this year. "We don't see any case for disinflation. There aren't any incremental drivers for the same, except for crude oil prices going down," she told CNBC-TV18.
Jahangir Aziz, Asia economic research, JPMorgan, says if a rate cut has to happen, it will happen post October. Going by the governor's statements, the monetary policy is looking at 3-4 quarters ahead (into the future), by when the relevant inflation target will no longer be 6 percent, but will be 4 percent, which in turn means that August as well as September inflation has to be below 4 percent, Aziz explains. This figure will come out only in October, hence a rate cut, if at all, can happen only post that.
Another important event that the governor will be waiting for is the US Federal Reserve rate hike, says Aziz.
'Veto' for now Commenting on the recent controversy on whether the governor will have veto power in the monetary policy committee or not, governor Rajan said it is work in progress and at the moment he (governor) has veto on policy.
Terming it an unfortunate event that unfolded, Aziz says it is very hard to see a monetary policy committee where the governor doesn't have a veto power, but is responsible for monitoring inflation.
Bond playThe bond market will only look at a further rate cut post US Federal Reserve action and its impact on emerging markets, says Jayesh Mehta, managing director and country treasurer, Bank of America. If it passes through well, then there will be another rate cut in September.
According to him, bond yields have peaked out for now.
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