Thursday, September 24, 2015

Chinese and Indian central banks likely to ease further - BBH

FXStreet (Delhi) – Research Team at BBH, suggests that with China data still softening, the PBOC is likely to continue its easing cycle and also the Reserve Bank of India is likely to resume its easing cycle soon, but not too aggressively.

Key Quotes

China:The last move was a 25 bp cut in its policy rates in August. CPI rose to 2.0% in August, the highest level this year. Still, inflation is not the main variable in the PBOC’s reaction function. As such, we expected easing to be complemented by further cuts in reserve requirements.”

India:The last move was a 25 bp cut in its policy rates in June. The next meeting is September 29, and a 25 bp cut in policy rates is expected. Price pressures remain low, with CPI rising 3.7% y/y in August, in the bottom of the 2-6% target range. WPI contracted -5% y/y, pointing to no pipeline pressures. Governor Rajan, however, is also very much focused on banking reform and legal issues pertaining to the independence of the central bank. Rajan has also made it clear that it fiscal discipline is an important element in the reaction function of the RBI. So the easing cycle will be gradual.”
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