Forex Flash: India inflation dynamics cast doubts over chances of easing in October – TD Securities.

FXstreet.com (Barcelona) - As expected, the Reserve Bank of India (RBI) left the benchmark repo rate unchanged at 8.00% at their mid-quarter monetary policy meeting, but surprised investors by delivering some monetary stimulus to the economy by means of a 25bp cut of the Cash Reserve Ratio ( CRR ) to 4.50%, which will inject INR170bn (roughly USD3.1bn at the current exchange rate) of primary liquidity into the banking system, based on the RBI's projections.

By analyzing the statement, TD Securities analysts come to the conclusion that the RBI has turned more dovish overall, highlighting the Fed and ECB's action that "have certainly mitigated short-term growth and financial risks", hence reducing the need to hold interest rates tight to defend the currency, but that "will also exert pressure on
global asset prices, and particularly, commodity prices," which bodes less well for monetary easing in the near
future.

In spite of praising the government's effort to consolidate the budget "by reducing fuel subsidies and selling stakes in public enterprises", the RBI is worried with the high inflation, both at wholesale and retail levels. The central bank also suggests the possibility of introducing a further round of easing, after a pre-emptive 50bp cut the RBI delivered in April. "Nonetheless, "as these expectations did not materialize and inflation remained firmly above 7.5 per cent," which is still the case, the inflation dynamics continue to cast doubts over the possibility that the RBI may resume easing as early as October", wrote TD Securities analyst Cristian Maggio.



Source : community.nasdaq.com