In an unscheduled review, RBI cut its key repo rate by 25bp to 7.75%. The move was in line with our forecast after RBI previously flagged the prospect of policy easing at, or even before, February’s regular bi-monthly Policy Review, and December’s benign CPI report released earlier this week. The statement following today’s decision signals the move likely marks the beginning of an easing cycle, noting evidence of the durability of disinflation, which inflation expectations have adapted to, and continued support from fiscal policy as key pressure points for further easing. Today’s rate cut thus should be seen as a ‘carrot’ in advance of the Union Budget. While a February move at the regular meeting by the data-dependent RBI is unlikely, if Finance Minister Jaitley then delivers a supportive Budget, a further 25bp rate cut should arrive by the April Policy Review at the latest.
* In an inter-meeting move, RBI cut the key policy rate – the repo rate – 25bp to 7.75%.
* The CRR and SLR were left untouched, at 4.0% and 22% of NDTL, respectively.
* RBI now sees CPI inflation as likely to undershoot its target of 6% by early 2016.
* Dovish language signals a further rate cut likely by the April meeting at the latest
