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RBI Monetary Policy Preview – One final hike likely
The Reserve Bank of India (RBI) will be conducting the 2QFY2012 review of its
monetary policy today. Majority of the street is expecting the RBI to carry out a
25bp hike in its repo rate. We also expect a 25bp hike in repo rate considering the
elevated inflation numbers; however, we believe this hike would be a final one in
the current interest rate cycle, given the continuation of the expectation of easing
domestic inflation due to lower global commodity prices, moderating domestic
growth environment and heightened global macro risks.
In spite of slowing domestic growth, inflation has stubbornly remained above the
RBI's indicated comfort level of 5-5.5% for 22 consecutive months. Although
headline WPI inflation for September 2011 moderated marginally by 6bp to
9.72% (from 9.78% in August 2011), it remained much above the comfortable
levels. Core (non-food manufacturing) inflation in September 2011 moderated to
a four-month low but remained well above its longer-term growth rate.
High inflation readings are likely to force the RBI to persevere with its hawkish
stance, considering the RBI's unequivocal guidance of change in stance only if the
inflation trajectory shows a downward movement. However, the recent sharp fall in
global commodity and energy prices following the Fed's abstinence from adopting
quantitative easing (QE)-III and weaker global demand prospects is likely to aid in
pulling down headline inflation to 8-9% from January 2012 and is likely to be a
meaningful case for the RBI to pause and even think of cuts depending on the
domestic growth scenario and international macro environment.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
RBI Monetary Policy Preview – One final hike likely
The Reserve Bank of India (RBI) will be conducting the 2QFY2012 review of its
monetary policy today. Majority of the street is expecting the RBI to carry out a
25bp hike in its repo rate. We also expect a 25bp hike in repo rate considering the
elevated inflation numbers; however, we believe this hike would be a final one in
the current interest rate cycle, given the continuation of the expectation of easing
domestic inflation due to lower global commodity prices, moderating domestic
growth environment and heightened global macro risks.
In spite of slowing domestic growth, inflation has stubbornly remained above the
RBI's indicated comfort level of 5-5.5% for 22 consecutive months. Although
headline WPI inflation for September 2011 moderated marginally by 6bp to
9.72% (from 9.78% in August 2011), it remained much above the comfortable
levels. Core (non-food manufacturing) inflation in September 2011 moderated to
a four-month low but remained well above its longer-term growth rate.
High inflation readings are likely to force the RBI to persevere with its hawkish
stance, considering the RBI's unequivocal guidance of change in stance only if the
inflation trajectory shows a downward movement. However, the recent sharp fall in
global commodity and energy prices following the Fed's abstinence from adopting
quantitative easing (QE)-III and weaker global demand prospects is likely to aid in
pulling down headline inflation to 8-9% from January 2012 and is likely to be a
meaningful case for the RBI to pause and even think of cuts depending on the
domestic growth scenario and international macro environment.
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