Goldman Sachs: RBI signaling 'lower for longer' rates

Monetary Policy Outlook - The recent 25 basis points rate cut is likely the end of the current monetary policy cycle, with the central bank focusing on easing financial conditions through liquidity measures [1] - The central bank's open market operations (OMO) include a purchase of 1 trillion INR and a $5 billion FX swap, indicating a potential for more dovish stances if growth underperforms in the upcoming year [2] - Inflation is expected to rise towards 3% in the next quarter and 4% in the following quarter, limiting the room for further easing due to inflation concerns [2] Central Bank Communication - During a press conference, the central bank indicated that due to benign inflation, policy rates are expected to remain low for the foreseeable future [3] - The interpretation of the central bank's statements suggests a likelihood of maintaining lower rates for an extended period rather than anticipating rate hikes soon [4] Economic Growth Considerations - The central bank's stance on potential further rate cuts is conditional on lower growth surprises, particularly with upcoming GDP base recalculations expected to show lower growth [5] - Current account deficits are widening due to decreased exports to the US and high gold imports, which may hinder growth in the near term [6] Inflation and Easing Conditions - The central bank may be willing to ease further if inflation forecasts decline, influenced by factors such as lower commodity prices or deflationary pressures from overcapacity in China [7] - However, easing based solely on inflation may take longer, as the central bank relies on a 12-month forward inflation forecast to guide its decisions [7]