India keeps rates unchanged as RBI cuts inflation forecast

Bloomberg

India’s central bank kept interest rates unchanged for the fourth straight meeting and cut its inflation forecast citing lower food prices.
Reserve Bank of India Governor Urjit Patel and his monetary policy committee retained the benchmark repurchase rate at 6 percent. The move was predicted by all 42 economists in a Bloomberg survey. Five of the six-member MPC voted for the decision, while one sought a hike.
“Overall food inflation should remain under check on the assumption of a normal monsoon and effective supply management by the government,” the Reserve Bank of India said in a statement in
Mumbai. It retained its neutral policy stance.
The decision will help extend a rally in the bond market, triggered last week when the government cut its first-half borrowing plans. That rebound in bonds received further support from RBI, which allowed lenders to spread their debt market losses over four quarters.

‘Goldilocks’ Outlook
The central bank is optimistic the economy would outpace China to become the world’s fastest growing major market this year and help lure investors seeking opportunities as a global trade war brews.
Slowing inflation, accelerating growth and an economy that relies on domestic consumption may help cushion India from the escalating trade war between the US and China. The Reserve Bank forecasts the $2.3 trillion economy will expand 7.4 percent in the financial year to March 2019. That’s faster than a 6.5 percent expansion projected for China in 2018 in a Bloomberg survey.
“The Goldilocks scenario that RBI has outlined for the new fiscal year — with higher growth expectations and lower inflationary forecasts — could very well indicate rates on hold for the whole year,” said Rajni Thakur, an economist at RBL Bank Ltd. in Mumbai. “It will boost the general market sentiments and bond markets in particular.”
Factors such as food prices, the trend in crude oil, other commodity prices and the outlook for the southwest monsoon will remain key in determining the policy trajectory, said Garima Kapoor, a Mumbai-based economist at Elara Securities India Pvt, who had penciled in one rate hike in the second half of the financial year.