(04 October 2019 ) DAILY MARKET BRIEF 2:RBI monetary easing marathon should slow

(04 October 2019 ) DAILY MARKET BRIEF 2:RBI monetary easing marathon should slow

4 October 2019, 13:31
Jiming Huang

As with most emerging countries seeking to boost economic growth, the members of the Board of Directors of the Reserve Bank of India unanimously voted in favor of a further rate cut. The RBI's repo rate is now at 5.15% (-1.35% year-to-date), a decrease of 0.25 percentage points, the fourth decline of the year and the lowest rate since March 2010. The reaction on the FX is rather subdued following the announcement as INR remains in range ahead of US payroll report.

The decision to cut rates came as expected as the RBI is willing “to maintain an accommodative stance as long as necessary to revive growth and ensure that inflation remains within target”. Furthermore, the RBI also reduced its growth forecast for FY2019 that runs to March 2020 from prior 6.90% to 6.10%, which would mark the slowest growth pace since 2013. Headline and core inflation ticked at respectively 3.20% and 4.20% in August (prior: 3.15%), holding in comfortable spots considering the medium-term target range of 4%. The Indian government is also expected to support the easing by increasing spending and investment in the country by reducing its corporate tax rate from 30% to 22%, an unexpected move that should widen fiscal deficit from targeted 3.30% to 3.50% - 3.80%. Accordingly, the latter should moderate the likelihood of further rate cuts before the end of the year, with the fifth bi-monthly monetary policy meeting scheduled for 5 December 2019. Therefore, Indian investors will be closely watching the bilateral trade negotiations between the US and India that are expected to take place after Prime Minister Narendra Modi's official visit to the US from late September, as part of the United Nations General Assembly.

USD/INR (+1.70 year-to-date) is now trading at 70.9675, largely below 72.3938 high (03/09/2019 high) and approaching 70.75 short-term.

.By Vincent Mivelaz

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