Reserve Bank of India Governor Shaktikanta Das said though inflation outlook seems benign, one should be watchful of the developments.
After raising interest rates twice in the last six months and changing the monetary policy stance from ‘neutral’ to ‘calibrated tightening’ — the new governor Shaktikanta Das’s ‘benign inflation outlook’ comment on his first day in office has made the market expect a dovish stance in the next policy review in February.
“It is very heartening to note that inflation is broadly as per targets. Inflation outlook also looks fairly benign at this stage but we have to be very watchful of the developments,” Mr. Das said in his opening remarks during an interaction with the media just ahead of the release of the November consumer price inflation number, which decelerated compared to the previous month. However, he did not comment on its implications for interest rates saying that would be decided by the Monetary Policy Committee next week.
The Governor also said he would interact with stakeholders to assess if liquidity was currently a constraint. In the last policy review earlier this month, the central bank left the key interest rate unchanged at 6.5% but reduced inflation projection sharply.
Focus on growth
“His [Mr. Das] focus on growth and his view that inflation remains benign confirms our view that he is more neutral to dovish on monetary policy, and supports our view of a reversal in the policy stance to ‘neutral’ in early 2019 followed by an actual rate cut in 2019,” analysts at Nomura wrote in a note to clients.
Yields on the benchmark 10-year government bonds dropped 12 basis points on Wednesday to close at 7.4%. A report by Bank of America Merrill Mynch said it expects the RBI’s MPC to roll back at least 25 bps of the 50 bps rate hike in February or April.