HSBC on Thursday said the RBI will stay on hold at the August 4 meeting and reiterate its data-dependent stance. However, it said, 'If rains remain non-disruptive, space for a final 25bp rate cut could open, but not more, unless structural reforms pick up.'
'Rains remain erratic and food prices spiked in June, though prices have eased in July. Growth recovery indicators provide mixed signals, global commodity prices have fallen again after a momentary rise, monetary transmission remains incomplete, and the timing of the Fed's lift-off depends on incoming data. In light of these unclear trends and unfolding data, we expect the RBI to remain on hold on 4 August and reiterate its data-dependent stance,' HSBC said.
Further HSBC said, 'By the end of August, the entire trajectory of rains will be known. Next month''s CPI will confirm if the June spike was a one-off, and the next few months will determine if the bout of soft global commodity prices will last. Another month''s services PMI will reveal whether the fall was indeed a one-off. And by early October, we will get indications if private sector investment is picking up at all.'
'Our base case is for no more rate cuts. However, if rains remain non-disruptive and the RBI''s 6% inflation target for January 2016 is within reach, space for a final 25bp cut in 4Q could open up, but not much more,' it concluded.