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India: RBI may cut repo rate twice in 2016 – NAB

FXStreet (Delhi) – John Sharma, Economist at NAB, suggests that Reserve Bank of India is likely to cut repo rate at least twice in 2016 after it surprised the markets late last month by cutting the repo rates by 50bps to 6.75%.

Key Quotes

“In addition to muted inflationary pressures and limited evidence of a pickup in growth, global factors (particularly around Emerging markets) influenced this decision.”

“The RBI will work with the Government to exert pressure on banks to pass on most of the 125bps of rate cuts this year.”

“Looking forward, NAB Economics is forecasting the RBI to remain on hold for the rest of 2015, with the Repo rate to remain at 6.75%.”

“Further ahead, NAB Economics is forecasting 2 more cuts to the Repo rate in 2016, with the Repo rate expected to end 2016 at 6.25%.”

“The risks to the forecasts are evenly balanced. In addition, the RBI announced a number of important regulatory measures, including greater overseas participation in Government bonds, and steps to boost the depth of the foreign currency market.”

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