India – Rbi to Ease Monetary Policy

The Reserve Bank of India (RBI) is expected to reduce its repo rate 25bps to 7.50% when it meets for its monetary policy decision on 2 June. Inflation stayed subdued at 4.87% y/y in April.Though the forecast of less than normal monsoon rain and the risk of larger rises in government procurement prices on increased rural distress are worries, it is believed that the current low inflation and favourable base effect until August 2015 will trigger another rate cut next week.Markets will watch the tone and monetary policy stance closely to assess the probability of further rate cuts. As of last week market expectations of further rate cuts beyond 2 June were contained.However, after recent comments from the chief economic advisor on interest-rate cuts and a competitive rupee, markets will watch RBI commentary closely.

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