LEIF ESKESEN, CHIEF ECONOMIST FOR INDIA AND ASEAN, HSBC, SINGAPORE
“Before the Reserve Bank of India begins to consider a rate cut it will need to see some inflation risks beginning to abate and more tangible progress from the government on cutting subsidy expenditure and introducing policy reforms. Today’s data shows underlying inflation pressure remains firm. Importantly, the core inflation has picked up which will remain a concern for the RBI. Yesterday’s fuel price increase is a positive step in the right direction and holds promise of but does not guarantee more reforms. Independently, it won’t sway the RBI because although it will limit the slippage in the subsidy bill, the fiscal deficit will remain significantly above the target in the absence of further measures. The RBI will have to factor that in.”
GAURAV KAPUR, ECONOMIST, ROYAL BANK OF SCOTLAND, MUMBAI
“By and large, I think any rate action will get delayed now. So if the inflation number would have been a little benign this time around we could have seen something in October, but I think now the chances of that have gone down. From a policy perspective I think going forward they (the RBI) will look for the government continuing on consolidation of the fiscal side. Yesterday’s moves are actually fairly limited in nature. The impact of QE3 on crude oil prices and subsequently on inflation in India is something we will also be watching out for very closely, because on the growth side things seem to be bottoming out.”
ABHEEK BARUA, CHIEF ECONOMIST, HDFC BANK, DELHI
“We have changed our rate cut expectations after the diesel price and LPG move and we still think RBI will cut rates in its September policy notwithstanding the high inflation number because the diesel price and LPG decisions are far more significant moves in the direction of fiscal consolidation. Given that RBI is committed to reciprocate to steps on fiscal consolidation, and that they held back on rates for so long, I think they might cut rates by 25 basis points on Monday.”
DARIUSZ KOWALCZYK, SENIOR STRATEGIST, CREDIT AGRICOLE, HONG KONG
“On balance, we expect no cut (on Monday), with 50 bps in easing only in the December quarter. However, the odds of a reduction (in September) are about 35 percent so the market can move on the decision. The WPI data itself is negative for the INR, bonds and equities, and will limit their gains for the day. The INR OIS curve should rise.”
RADHIKA RAO, ECONOMIST, FORECAST PTE, SINGAPORE
“Upside surprise in August WPI is likely to put rate-cut calls to rest in the near-term, especially in wake of yesterday’s diesel price hike and likelihood of rebound in commodity prices in light of US stimulus measures.RBI needs to balance between indications that the government is stepping up its fiscal consolidation efforts against immediate risks to price stability. Hearteningly improved risk-sentiments have eased depreciation pressures on the currency. We maintain our no-change call on rates for Monday.”
RAHUL BAJORIA, REGIONAL ECONOMIST, BARCLAYS CAPITAL, SINGAPORE
“The September policy decision remains a tricky call for RBI after the high WPI number. But since the government has at least taken the first step to cut subsidy, the ball is now in the RBI’s court. I think there will be some pressure from the finance ministry on the RBI to cut rates. We also expect another 25 basis points rate cut in the next quarter as the pace of core inflation rise should not create a discomfort to RBI.”
MADAN SABNAVIS, CHIEF ECONOMIST, CARE RATINGS, MUMBAI
“The fundamentals don’t justify a rate cut at this point of time because the inflationary expectations are still quite high. The quantitative easing in the US is also likely to push up global commodity prices and add to inflation. I don’t expect a rate cut on Monday as the RBI has repeatedly said inflation is its main goal post. But I won’t be surprised if there is one after the diesel price hike yesterday, which is a very positive step taken by the government.”
RUPA REGE NITSURE, CHIEF ECONOMIST, BANK OF BARODA, MUMBAI
“Inflation has increased sharply in August on significant increase in the prices of certain fuel items whose prices are market determined and a large increase in the prices of minerals and manufacturing products due to the lagged impact of rupee depreciation and relatively firm demand. Even core inflation has further increased to 5.56%> Given this, the RBI is unlikely to lower the policy rates on September 17.”
A PRASANNA, ICICI SECURITIES PRIMARY DEALERSHIP, MUMBAI
“After this inflation number I don’t expect RBI to cut rates before January. If demand had been slow, then how are food, manufacturing, and non-food manufacturing prices rising? So there is very less spare capacity in the economy which means the trend growth is still high. With this inflation number, I think even the March inflation projection of 7% is under threat and so I don’t think RBI should cut rates now. In July, RBI had expected the inflation trajectory to ease, which I don’t think will happen soon.”
SURESH KUMAR RAMANATHAN, HEAD OF REGIONAL RATES AND FX STRATEGY, CIMB, KUALA LUMPUR
“Price pressures above consensus and in line with expectations that the RBI stays pat on rates. I see the risk of markets starting to pay on the swaps. With commodity prices still on the upside, it diminishes the hope for any easing stance by the RBI in the near term. In our view RBI may also not be inclined to cut rates anytime soon as the diesel price hike will keep the inflation trajectory on the upside in the short term.”
SHAKTI SATAPATHY, FIXED INCOME STRATEGIST, AK CAPITAL, MUMBAI
“The higher August provisional headline is primarily a factor of significant jump in fuel index and core manufacturing. Further the revised June figure indicates persistent upside risk. The domestic price hike along with rising global crude are considered to be the near-term threats and would keep the inflation levels higher in the coming months. The diesel price hike (on Thursday) is a good start in the right direction, but the RBI is expected to remain unmoved (on Monday) with an anticipated softer tone for the October policy meet. With almost all the negatives factored in, significant upside risk across the yield curve seems limited.”
BACKGROUND
* The government raised the price of diesel to rein in its fiscal deficit and counter the threat of becoming the first of the big emerging economies to be downgraded to junk, but the move would pile pressure on inflation.Reuters
