India Monetary Policy: February 2017

The RBI, somewhat surprisingly, maintained the policy repo rate at 6.25%. Uncertainty about the effects of demonetisation and sticky core inflation were factors.

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The Central Government’s Budget reflects a prudent fiscal stance, with the fiscal deficit anticipated at 3.2% for 2017-18. NAB Economics is forecasting one more rate cut to 6% (most likely August), the last of the current rate-cutting cycle. Higher crude prices, a weak monsoon projection and uncertainty in the external environment might preclude a further rate cut.

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