RBI policy: Fiscal could add a twist to monetary easing, says economist

As the RBI has de-emphasised the concept of real policy rates, forecasting the terminal rate has become more difficult, says Samiran Chakrabarty

In the October MPC meeting, the critical departure from the August policy is going to be the change in the growth outlook and the uncertainty around the impact of the corporate tax rate cut. While the former might prompt the MPC to consider a deeper rate cut, the latter could force the MPC to rethink the monetary policy path when the fiscal has come onboard to support the recovery.

We think that the RBI is more likely to push the FY20 GDP growth forecast closer to 6 per cent from 6.9 per cent earlier but have a sharply higher forecast for