Further measured easing likely from RBI

The Reserve Bank of India (RBI) will announce its monetary policy decision on 29 September. Disinflation in India had been materially stronger than expected recently, which has created room for further monetary easing. 

"A 25bp cut in the repo rate is the expectation for next week. Concerns of renewed weakness in the global economy and its effect on commodity prices could offer further cushion to upside pressures to the inflation trajectory in India in the coming months", says Barclays. 

On the other hand, the recent turmoil in financial markets globally has likely posed greater challenges for any decisive policy action for central banks, including India. Nevertheless, the spell of strong disinflation along with only a nascent recovery in growth momentum should lead to a more accommodative monetary policy stance by the RBI. 

Some of the recent public comments from the central bank, for example, by Governor Rajan during the Jackson Hole summit in end-August, were more dovish than previously. 

"On balance, a 25bp reduction in the repo rate and a commentary with a balanced tone remains the most appropriate policy response for the RBI. The possibility of a larger cut by the RBI (say 50bp) remains low", added Barclays.