Kotak Mahindra Asset sees one more rate cut by RBI after GDP miss

The Reserve Bank of India will have scope to cut benchmark interest rates once again as growth in Asia’s third-largest economy slows and consumer-price gains stay within the central bank’s target range, according to Kotak Mahindra Asset Management Co. “You have a confluence of favorable CPI, lower GDP growth and a necessity to keep rates stable with easing bias,” said Lakshmi Iyer, the Mumbai-based chief investment officer for debt at the money manager. “The scope for one rate cut by March 2018 is definitely there.” Calls for further monetary easing have resurfaced after data on Aug. 31 showed that economic growth in the April-June quarter was the slowest since 2014. The RBI last cut the key repurchase rate to 6 percent on Aug. 2 and signaled that its future moves will depend on how the inflation data pans out. That saw the benchmark sovereign bonds post their first monthly decline since April.

Consumer prices probably rose 3.24 percent in August from a year earlier, according to the median estimate in a Bloomberg survey of economists before an official report due later Tuesday. That’d be faster than July’s 2.36 percent pace, but within the RBI’s projected range of 2 percent to 3.5 percent for the April-September period. “Neither from the demand side, nor the supply side could one be led to believe that inflation can skyrocket from current levels,” said Iyer of Kotak Mahindra Asset, which oversaw 1.01 trillion rupees ($15.8 billion) at the end of June. The money manager’s bond funds are primarily invested in the seven-to-12-year segment of the sovereign yield curve, she said. India’s benchmark 10-year yield was little changed at 6.57 percent in Mumbai on Tuesday, having risen 13 basis points from Aug. 1.

Kotak Mahindra Group