The Reserve Bank of India meets next week, and pressure on it to deliver rate cuts is building, as growth remains sluggish and inflation has declined considerably.“Our long-standing expectation of downside surprises in inflation in India is materialising. We feel CPI inflation will likely fall to ~4.5% y/y in Nov. The ongoing weakness in commodity prices, which appears unlikely to be temporary, is playing a major role in this context. The major softening in inflation momentum has reinforced our expectation of a more accommodative monetary policy. We are more confident of our baseline expectation of 50bp of repo rate cuts in H1 2015. We recognise an outside chance of a rate cut in the December policy meeting, if Governor Rajan wants to surprise. However, we think any cut would be balanced with a generous dose of caution to temper expectations of further near-term easing.” – said Barclays Capital in a note to its clients on Friday.
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