RBI's another rate cut of 25bps likely in H1 16

Government of India's pro-active food price management, persistent idle  manufacturing capacity leading to weak pricing power, fresh leg down in commodity prices globally in Q3 2015, and relatively stable INR seem to be offering the central bank greater comfort with regard to the inflation trajectory in the coming months.

"The RBI seems to have gained greater comfort from the drop in inflation during the summer, with the central bank more confident of achieving its early 2016 CPI inflation target of 6%. In the monetary policy statement on 29 September, the RBI even lowered its March 2016 CPI inflation forecast by c.20bp to 5.8%, which puts it close to our forecast of 5.7%", says Barclays. 

Even after delivering the unexpectedly large 50bp cut in the repo rate in September, the RBI continues to emphasise that its future actions will remain data dependent. The RBI has, however, been categorical about its "accommodative" bias. The central bank's guidance has been more balanced of late compared with the previous three occasions this year when it announced a repo rate cut. 

"Greater comfort on the inflation trajectory and a moderation in inflation expectations, which remain possibilities could provide room for another 25bp repo rate cut in H1 16, which would take the repo rate to 6.5% by mid-2016 (though not our base case). However, this will depend critically on the inflation trajectory - the central bank will likely look forward to greater clarity on 2016 inflation before delivering further monetary easing", added Barclays.