Dovish Reserve Bank of India stays on hold

August 6, 2020

NEW DELHI -- In a unanimous decision, the Reserve Bank of India (RBI) today kept its policy repo rate and reverse repo rate unchanged at 4.00% and 3.35%, respectively. Acknowledging that growth will contract in FY21, the central bank noted that policy space is available for further action, but only when inflation has durably reduced.

In a research note, ANZ Bank says that, while falling short of specifying numbers, RBI Governor Das said inflation was expected to remain elevated in Q2 FY21 (ending September) but to ease in H2 FY21.

On growth, the Monetary Policy Committee (MPC) expected a contraction in H1 FY21 as well as for the full year. "We concur," ANZ says.

With inflation expected to remain elevated on supply side disruptions, ANZ said it believed a rate cut for India was more probable in December.