India Monetary Policy Outlook – April 2016
The April 5th Monetary policy meeting was a landmark in terms of the policy measures announced. The 25bp cut in the policy rate was accompanied by a raft of measures to boost liquidity and ensure more effective monetary transmission by banks.
Summary & Overview
- The RBI cut the policy Repo rate by 25bps at its April meeting. It also tightened the policy corridor to better align policy rates with the call rate (interbank overnight borrowing rate).
- Subdued inflation outcomes (due to lower food prices), the Government’s commitment to fiscal consolidation and weak capital spending led to the rate cut.
- The most significant changes, however, were the additional liquidity measures announced to facilitate more effective monetary transmission.
- Foreign portfolio investors have turned to net purchasers of Indian equity markets since March,following 3 months of outflows.
- Volatility in the foreign exchange market remains muted, assisted by record high FX reserves.
- NAB Economics is forecasting another rate cut in the September quarter to 6.5%.
- Uncertainties regarding the Seventh Pay Commission’s recommendations, the upcoming monsoon season and a possible re-emergence of commodity price pressures could limit the scope for further cuts.
For further analysis download the full report.