Indian markets hope for another interest rate cut in April but oil prices dampen the mood

  • Low inflation raises the odds of another rate cut by the RBI.
  • Another interest rate cut in April 2019 is certain, an report said.
  • However, spike in crude oil prices cap gains in Indian share market.
Indian markets are off to a tentative start. The bulls are buoyed by the subdued inflation data that may lead to another cut in interest rates from the country's central bank. However, casting doubts in their mind is the spike in crude oil prices after the global oil producers' lobby decided to cut output further to shore up prices.

Benchmark index Nifty at the National Stock Exchange (NSE) opened lower as global crude oil prices surged as much as 3% on Tuesday. Higher oil prices are bad for India, which imports nearly 80% of all the crude oil it needs.

However, there is hope for the bulls as inflation in India hit the lowest level since June 2017, and stayed below the RBI's 4% target for the sixth month in a row. "With inflation now set to be below 4% for most of 2019, a rate cut in April looks a certainty and it will now be a choice between a 25 or a 50 basis point rate cut," SK Ghosh, chief economist at State Bank of India, said.

Markets like lower interest rates as it not only brings down borrowing costs, it also boosts consumer demand for products, helping corporate profits. All sector indices gained in the first hour of trade, most of all the consumer stocks. The rupee opened up 22 paise against the dollar on Wednesday.

The RBI cut interest rates for the first time in nearly 18 months in February 2019 to boost economic growth and market sentiment.

However, as a net importer of crude oil, higher prices as a result of the output cut by the Organisation of Petroleum Exporting Countries (OPEC) will worsen India's inflation, and as a result, the fisc too. Together, they will limit the room for policymakers to stimulate the economy further.

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