Governor Urjit Patel pointed to low capacity utilization and easing food costs to suggest the Reserve Bank of India could meet its 5 percent inflation target for March 2017, even as he cautioned continued vigilance. Increasing comfort on food prices -- which had been the main driver of inflation -- was echoed by almost all other members as monsoon rains recovered following two successive droughts.
It was timely to reduce borrowing costs because India's on the cusp of an inflation-growth balance, Michael Patra, a member of the MPC, said in the statement published by the central bank on Tuesday. He described it as "a reasonable probability of inflation converging to its target and the economy poised on the threshold of an acceleration of growth in the next three quarters of the year."
Investors will scrutinize each of the members' statements from India's first ever collective rate decision, as they gauge room for deeper easing in Asia's No. 3 economy. Patel on Oct. 4 cut the policy rate to the lowest in more than five years and signaled a looser tolerance for price pressures.
Government data since then has shown that consumer price-gains slowed in September to a 13-month low. Exports rose in September at the fastest pace in almost two years and other indicators like steel production recovered in August.
Even so, most said that inflation in the world's second-most populous country still needs to be monitored, considering a recent pay increase for government employees and a new national sales tax expected to be implemented next year. For now though, it'll stay tame.
"This is not to say that the beast has been beaten or its back broken, but there is a turn in its momentum that is exploitable," Patra said.
@2016 Bloomberg L.P.