RBI stays firm on pause button: Rate reduction likely in August

The MPC decision to adopt a wait-and-watch stance on Wednesday is based on sound factors

After a series of surprising policy outcomes since December, the latest monetary policy committee (MPC) decision to keep rates unchanged with a dovish undertone to its statement cheered the market. The benchmark 10-year bond yields declined seven basis points (bps), while the 5-year overnight index swap (OIS) rate declined by 10 bps.
 

For us there were three takeaways. First, we believe that the MPC is likely to reduce policy rates by 25 bps to six per cent in the August policy meeting, as consumer price index (CPI)-based inflation is likely to remain subdued. In our view, FY18 CPI-based inflation is