Brief Macro: FLASH: BoE Sees Gloom Before Room to Raise Rates and more

In this briefing:

1. FLASH: BoE Sees Gloom Before Room to Raise Rates
2. India: Monetary Policy Review – One More Rate Cut Likely

1. FLASH: BoE Sees Gloom Before Room to Raise Rates

• The MPC was unanimous in leaving policy unchanged again in Feb-19, as expected.
• Downgrades to demand projections seem excessive, in my view, with too much weight put on soft surveys. Inflation is forecast weaker in the short-term, owing to energy, but is revised up through the policy-relevant medium-term.
• Inconsistent assumptions around Brexit were explored in an Inflation Report box, where the net effect of uncertainty and sterling was ambiguous for policy. A rate hike after withdrawal negotiations resolve still looks likely.

2. India: Monetary Policy Review – One More Rate Cut Likely

At the first monetary policy meeting of the new RBI Governor, the MPC reduced the policy rate by 25bps to 6.25% and changed the stance of monetary policy to ‘neutral’ from ‘calibrated tightening’. Both were as expected by analysts and the markets. The MPC also significantly lowered its inflation projection and it now expects headline CPI inflation to remain below 4% for the foreseeable future. This new revised forecast, implies that there is space for one more rate cut. I expect the MPC to use this space in its April policy review before going on pause for the subsequent few policy reviews. Today’s rate cut does not, by itself, suggest that the new Governor will be unduly dovish. That said, given the slightly surprising voting pattern, the minutes of the policy meeting (to be released after two weeks) will provide a bit more color on the changed dynamics in the MPC.