RBI may not increase interest rates until April, according to economists polled by Reuters
The Reuters conducted a poll of economists who say that Reserve Bank of India is not likely to increase interest rates until April. The economists say that the rise will probably be a "one-and-done."
The tussle between RBI and government over policy matters has "somewhat diminished" the central bank's independence according to a third of the 46 respondents, though two-thirds saw no major impact.
After the RBI surprised markets on October 5 by not hiking interest rates, a Reuters poll taken just after that meeting forecast that the central bank would instead tighten policy at its December 5 meeting, and hike again in 2019.
But the latest poll of 70 economists, taken between November 22-28, predicted the RBI would hold its repo rate at 6.50 per cent at its meeting next week. Over 60 per cent of 51 common contributors with last month's poll switched their forecasts to no change from a hike predicted earlier.
"The trajectory (for rate hikes) will be lower than what markets have been expecting so far because of favourable inflation and as the growth outlook has turned soft," said Shashank Mendiratta, India economist at ANZ.
The RBI is now forecast to hike its repo rate in the April-June quarter next year, taking it to 6.75 per cent, and then to hold it steady for at least another year.
This follows the Monetary Policy Committee's surprise shift at the October meeting to a stance of "calibrated tightening".
At the time, economists had been unsure how to interpret that guidance, but, based on the Reuters poll results, they now think it means less tightening.
Even those economists who forecast more than one rate rise said that the risk to the RBI's rate path was for slower rate rises.
Since early last month, oil prices have dropped around 30 per cent and the rupee has recovered about 5 per cent after touching a lifetime low of 74.48 per dollar on October 11. Retail inflation remained below the RBI's 4 per cent medium-term target for a third straight month in October.
Gross domestic product data for the July-September quarter is due to be released late on Friday, and a Reuters poll forecast that it would show growth had slowed to 7.4 per cent from 8.2 per cent in the previous quarter, making disappointing reading for a government that faces an election within six months.