MUMBAI: The chances of a rate cut in the December monetary policy review are negligible, according to Nomura. Analysing the minutes of the October policy meetings of the monetary policy committee (MPC), released on Wednesday, the Japanese brokerage said the MPC minutes suggest there won’t be a cut in December, unless the Q2 growth numbers surprise.
“Retail inflation is likely to moderate to under three per cent in October, but since the drop is driven by food prices, core inflation is likely to stay above four per cent amid rising risks of a fiscal slippage, we expect rates to stay unchanged in the December 6 meeting,” the brokerage said in a note.
Nomura observed that while MPC member Ravindra Dholakia and Michael Patra of the central bank are likely to continue to vote for a cut and a pause, respectively, the response of the other four members will depend on how well growth holds up.
“The divergence in the views of Dholakia and Patra remains intact with the former seeing space for a 40 bps rate cut owing to very high real rates, while the latter voting for a pause, but stated that the MPC must be ready to raise rates if needed,” the report noted.
Economists are looking forward to the GDP print for the September quarter, which will be released on November 30. Data so far suggests that at 5.6 per cent the economy has bottomed out in the first quarter, and gross value added (GVA) growth should rise close to the RBI projection of 6.4 per cent in the second quarter of this financial year.
According to Nomura, the minutes suggest most members voted for a pause as they are concerned about the sharp rise in headline and retail inflation, higher oil prices, rising fiscal risks and still-elevated inflation expectation.“We assign only a 25 per cent probability to a cut, provided core inflation substantially undershoots, growth disappoints or if government sticks to the fiscal deficit target,” Nomura concluded.