India: MPC to cut rates at this week’s meeting – Standard Chartered

Standard Chartered analysts are maintaining their call that the Monetary Policy Committee (MPC) of India will cut the repo rate by 25bps to 5.75% at its 3-6 June meeting amid benign growth-inflation dynamics.

Key Quotes

“Factors supporting this view include weaker-than-expected GDP growth in FY19 (ended March 2019), rising global growth concerns amid the re-escalation of US-China trade tensions, falling crude oil prices, and a clear mandate for India’s next government.”

“A risk to our call is if the MPC wants to await more clarity on monsoon rains, US-China trade tensions (from the G20 meeting at end-June), and India’s final FY20 budget presentation on 5 July; this could prompt it to delay the cut until the August policy meeting.”

“While we expect the MPC to revise up its average FY20 inflation projection by 20-25bps (from the 3.3% forecast in April), this is still well below the mandated threshold of 4%.”

“We revise down our FY20 CPI inflation forecast to 3.7% from 4.0% given consistent downside surprises from core inflation. This brings our forecast closer to the MPC’s projection.”

“Further easing at the June policy meeting looks probable given that CPI inflation is likely to stay below 4% for a third consecutive year in FY20 (as per our revised forecast).”