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Split Amongst Analyst over Future Course of RBI Monetary Policy

Will there be a rate cut in the near future on ebbing inflation or will the RBI look at current phase as transitory and hold for long? Analysts were today a divided lot on future moves of the Reserve Bank.

Bank of America Merill Lynch said the Monetary Policy Committee’s (MPC) concerns on inflation are dissolving given the cut in its outlook to 3.5-4.5 per cent band in H2FY17 as against 5 per cent earlier, and expected a rate cut at the next review on August 2 if the rains are good.

However, analysts at Japanese brokerage Nomura and British brokerage HSBC felt otherwise. “The RBI has rightly looked through the current period of low inflation. Our longer-term models are still predicting a return of inflation to pre-demonetisation levels next year and household inflation expectations have barely budged,” Nomura said, adding it expects no cuts in 2017.

The RBI, which is mandated to ensure that inflation is at 4 per cent in the medium-term, chose to go for a status quo in the rates at its review yesterday, but also lowered its expectations on inflation by up to 1.40 per cent, after the headline number came down to 3 per cent in April.

It can be noted that analysts have a separate conference call with the RBI brass later, where the media is no more allowed to listen in.

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