India: Surprise hold from RBI – TDS

Analysts at TD Securities note that the RBI surprised the market and kept rates on hold, contrary to market expectations for a 25bps cut.

Key Quotes

“Even more surprising, the decision to hold was unanimous, which illustrated how wrong-footed the market was. We think that the RBI must have been concerned more than most expected by the recent spike in inflation. This, in turn, was caused by a rapid increase in food prices in October, which is likely to extend into November, as well. Nonetheless, the statement points to further cuts down the road, suggesting today's decision is merely a pause.”

“Alongside the decision, the RBI also raised their 2020 inflation forecast reflecting the likelihood that food will continue to exert upward pressure on CPI in the near term as well as rising household inflation expectations.”