India: MPC minutes show concerns about inflation, not growth – Nomura

The research team at Nomura explains that the India’s monetary policy committee’s (MPC) surprise decision to stand pat in October was driven by a downward surprise in inflation and the need to wait and monitor the impact of hikes already delivered.

Key Quotes

“Yet, the MPC voted to change its policy stance to “calibrated tightening” to signal its commitment to the Reserve Bank of India’s (RBI) medium-term target of 4% given upside risks to inflation.”

“In our view, the inflation risks cited are not entirely new and the timing of the change in stance is surprising; we had expected a change in June 2018, before the 50bp cumulative hikes were delivered.”

“Despite the MPC’s change in stance, we expect policy rates to be left unchanged in December and beyond, as we expect inflation to continue to undershoot and believe that downside risks to growth owing to tight domestic financial conditions (and other factors) are being underestimated. In this weak demand environment, we expect the pass-through from cost-push factors to be limited and underlying inflation to converge towards 4.5%.”