April 13, 2015

India Monetary Policy – April 2015

The RBI held the benchmark Repo rate at 7.5% in its April Meeting which was largely anticipated, given the previously ‘front-loaded’ rate cuts in January and March. The RBI highlighted recent unseasonal rains had generated uncertainty and banks had not passed on the previous rate cuts.

Key points

  • The RBI held the benchmark Repo rate at 7.5% in its April 7 Meeting.
  • Governor Rajan also chided banks for not passing prior rate cuts. Following his remarks, a number of banks reduced their base rates.
  • Headline consumer inflation rose to 5.4% in February. However, inflationary pressures remained contained, with Core CPI falling to 4.1% in February.
  • India’s external position is much more secure than before, with FX reserves at USD343bn.
  • Reflecting increasing confidence in India’s economic prospects, Moody’s upgraded India’s outlook from stable to positive.
  • The RBI announced a number of regulatory changes, including measures to allow Indian Corporations to issue Rupee-denominated bonds overseas.
  • NAB Economics is forecasting another 25bp cut to the Repo rate in 2015– most likely in the June quarter, with the year-end Repo rate expected at 7.25%.
  • Further rate cuts are possible but depend on : path of food prices and the monsoon rains; the supply response (land, power, etc) and possible external uncertainty.

For further details, please see the attached document.