India Monetary Policy – October 2014

The RBI held the policy Repo rate at 8% in its latest meeting – as broadly anticipated. The focus on meeting the 6% headline CPI outcome in January 2016 was reiterated.

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  • The RBI held the policy Repo rate at 8% in its latest meeting – as broadly anticipated.
  • The focus on meeting the 6% headline CPI outcome in January 2016 was reiterated.
  • The RBI adopted a number of measures, including allowing banks to access additional liquidity, provided they meet their 22% SLR holding requirements.
  • Core CPI inflation has declined markedly since September last year. However, high Food price inflation due to the drought has limited the decline in Headline CPI.
  • Inflation expectations remain high, and have edged higher this quarter, limiting any prospect for a rate cut.
  • India continues to remain an attractive investment destination, particularly for Foreign Debt investors. The recent upgrade in India’s outlook from negative to stable by S&P will help improve India’s risk perception.
  • We forecast the RBI to remain on hold at 8% during the remainder of 2014 and 2015. A 25bp rate cut is anticipated to bring the Repo rate down to 7.75% in the March quarter, 2016.

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