India heading for more policy easing this year

More to follow January's rate cuts.

"As reported in today’s India Flash, the Reserve Bank of India (RBI) cut its benchmark repo rate and Cash Reserve Ratio (CRR) by 25 bps each to 7.75% and 4.0% respectively. The move was the first rate cut since April 2012, with the RBI basing its decision on: (i) a moderation in inflation; (ii) deceleration in growth; and (iii) tight liquidity conditions," said BBVA.

"Looking ahead, with inflation trending lower (WPI inflation eased to 7.3%y/y in 4Q12 from 7.9% y/y in the previous quarter), the RBI’s baseline scenario suggests a reasonable likelihood of further modest policy easing in 2013, in line with our expectations of an additional 75bps in cuts by the end of 2013," added BBVA.

"That said, the RBI acknowledged that room for further easing remains “limited” due to upside risks to inflation, and the presence of “twin” deficits in the external current and fiscal accounts," it said further.