Ind-Ra: Focus on RBI Monetary Policy Review

Both debt and currency market are pricing in a 25bp rate cut by the Reserve Bank of India (RBI) in this week's policy review, says India Ratings and Research (Ind-Ra). In Ind-Ra's view, RBI is likely to emphasise its accommodative stance, and that it stands ready to act when inflation shows signs of sustainable moderation. The benchmark 10-year G-sec is expected to trade in the range of 7.35%-7.50% this week, with the tone of policy to be in focus. Rupee, on the other hand, is expected to hover between 65.85-66.65/USD through the week.

Ind-Ra expects the bond yield to largely focus on RBI's first monetary policy for FY17 due on 5 April 2016. Since the market has largely factored a 25bp cut, a further fall in G-sec yields will be contingent on a deeper-than-expected rate cut or a dovish commentary. For the week, Ind-Ra expects the 10-year benchmark yield to trade between 7.35%-7.50% (7.46% at close on 31 March 2016). An important takeaway from the policy will be the communication and guidance for policy rate trajectory. Moreover, it being the first policy of the fiscal, RBI's assessment of inflation and growth trajectory along with its assessment of the recent monetary policy developments of global central banks and its likely spillover impacts will be critical in its bi-annual Monetary Policy Report.

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