The Indian Central Bank is expected on Wednesday on a status quo concerning its guiding rates, but the probability of a new decline has increased after the United States imposed high customs duties last week on Indian exports, thus accentuating the pressure on growth while inflation remains moderate.
A large majority of economists, or 44 out of 57 interviewed during a Reuters survey conducted from July 18 to 24, anticipate that the monetary policy committee (MPC) of the Reserve Bank of India (RBI) will maintain the repo rate at 5.50 % at its meeting on August 6.
However, the climate was set after the announcement of new customs tariffs.
“Even without this announcement of prices, we could already consider a drop in rate of 25 basic points. The rate of 25 % represents an additional shock for growth, ”analyzes Anz Research, adding that growth and inflation should be lower than RBI forecasts.
The RBI had surprised in June with a drop of 50 base points, stronger than expected, and had adopted a “neutral” posture, indicating that its next decisions would depend on the data to come.
In July, the Indian manufacturing sector experienced its strongest expansion in 16 months, the HSBC-S & P global climbing index climbing 59.1. However, companies’ confidence has fallen at its lowest level for three years, companies evoking competition and concerns related to inflation, a sign of a possible weakening of the underlying demand.
Retail annual inflation in India has slowed down to 2.10 % in June, its lowest level for more than six years, approaching the lower terminal of the Central Bank’s tolerance range, thanks to the continuation of the drop in food prices. Inflation could even reach a record level in July.
“If this context is favorable to a new monetary easing, it is not yet convincing enough to justify a fourth consecutive drop in rates and thus exhaust the room for maneuvering monetary policy,” said Aastha Gudwani, chief economist India at Barclays.
RBI Governor Sanjay Malhotra said last month that the central bank won the battle against inflation, but war was continuing, adding that future monetary policy decisions would be guided by growth and inflation prospects, not by current levels.
Nomura also believes that the probability of a decrease in August remains limited after the flexibility of June and the change of posture, even if the probability of a drop has been noted to 35 % against 10 % previously.
“Neither the bond market nor that of Swaps includes a drop in rates on Wednesday, and if that were to happen, we could attend a rally. For the time being, the central scenario remains an accommodating speech and a break on rates, “said an operator from a public bank.
The markets are also waiting for the announcement of a new liquidity framework, which could be revealed at the same time as monetary policy.