RBI Policy Review - Long Pause Expected: Edelweiss PDF link

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The RBI, in its monetary policy review, has left the policy rates unchanged as expected. Similar to its August policy review, the RBI maintained that there are upside risks to its inflation target of 6% by Jan 2016, but acknowledged that such risks have moderated a bit. Importantly, the RBI’s projections for 2015-16 shows CPI hitting ~7% by Q4FY16 (~100bps higher than target). But such projection notwithstanding, the governor stated in the press conference that it is “appropriately set” to achieve its CPI target of 6%. In that sense, the RBI tried to make a distinction between its model-based projections and its overall assessment of inflation trajectory, and we presume that it is the latter which will guide its policy stance.

Overall, it appears that the RBI is in no hurry to reverse its monetary stance. After all, growth concerns which were pulling the RBI in the other direction, have also receded a bit. Besides, the RBI acknowledged that Fed tightening reduces the elbow room to set the domestic policy rates. This suggests that the policy rates will be on hold for long, with chances of the first rate cut being pushed towards mid-2015 or even later.

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LINK
https://www.edelweiss.in/research/RBI-Policy-Review--Long-Pause-Expected/27180.html