India's central bank lowered policy rate by 25bps

More aggresive policy rate cuts likely in the coming months.

Further moderation inflation is likely to lead to more aggressive monetary easing‎ expectations, said HSBC.

The newly constituted six member monetary policy committee (MPC) of the Reserve Bank of India (RBI) reduced the repo policy rate by 25bps to 6.25% at its 4 October meeting.

All six members voted in favour of the rate cut. While the minutes of the MPC meeting will be released only on 18 October, the monetary policy statement highlighted that upside risks to RBI's interim inflation target of 5% have reduced.

The new governor - Dr Urjit Patel - highlighted in the press conference that there are also downside risks to inflation.

That said, HSBC notes that further moderation in inflation is likely in the coming months on the back of lower food prices and favourable base effects.

"As such ND OIS rates could price in more aggressive policy rate cuts and we recommend maintaining receive position in INR1yr1yr ND OIS with a target of 6%. The key risk to this trade is more than expected increase in inflation and paring of rate cut expectations," said HSBC.