India's sweeping changes in policy, approving stake sales in state-run companies and raising diesel prices to set weak finances in order, will likely pave the way for the Reserve Bank of India to cut policy rates, says Barclays Capital in a note. "While today's policy decision remains a close call, news overnight has tilted the balance of risks towards our expectation of a 25-bp rate cut," it says. If policy is eased, local bonds and currency should gain more. But, risks emerge from stubbornly high inflation -- the August WPI reading surprised on the upside -- and headline inflation may firm up as the fuel price hike impact kicks in. Further, "if these (policy) changes are not derailed by any political backlash, they would send a positive signal for the economy in terms of easing fears about policy paralysis, fiscal consolidation and on the ratings front," Barclays says. Still, even if the RBI doesn't cut the repo rate, it will likely continue its 'stealth' easing.
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