“I do not think they will change their stance as yet,” as a change in monetary policy stance does not need to precede a rate cut, said Radhika Rao, senior economist and executive director at DBS Bank in Singapore.
“Both could happen concurrently when they finally bite the bullet,” she told the Reuters Trading India forum.
The Reserve Bank of India is likely to keep rates steady on Wednesday, with some investors betting on a change in stance to “neutral” from “withdrawal of accommodation” as economic growth slows.
India’s economic growth slowed to 6.7% in the April-June quarter from a year earlier as a decline in government spending during national elections weighed, but it remained the world’s fastest-growing major economy.
Several economists expect at least one dissenter, among India’s newly-appointed monetary policy committee members, to call for a rate cut. “Official leaning of the new members is likely to be gleaned from the commentary during the rate decision as well as subsequent minutes of the policy meeting,” Rao said. Last week, India’s government appointed Ram Singh, Saugata Bhattacharya and Nagesh Kumar as new external members of the RBI‘s rate-setting panel.
Meanwhile, the recent escalation in tensions in the Middle East is being watched, Rao said, but they are unlikely to impact foreign investments into Indian government bonds.
“I would still expect country-specific drivers to continue triggering portfolio adjustments.”
She also expects the RBI to revise down its growth forecast by 20 basis points to 7% at either the October or December policy meeting, to account for a slowdown in the Indian government’s capital expenditure.