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RBI Likely to Go for Final 0.25% Rate Cut in February: BofA-ML
Highlights
The Reserve Bank of India (RBI) is likely to hold the pause button in its December policy meeting, but may go for a final 25 basis points (bps) rate cut in February, says a Bank of America-Merrill Lynch (BofA-ML) report.
The Reserve Bank of India (RBI) is likely to hold the pause button in its December policy meeting, but may go for a final 25 basis points (bps) rate cut in February, says a Bank of America-Merrill Lynch (BofA-ML) report.
According to the global financial services firm, inflation is likely to meet the RBI's under 6 per cent January 2016 mandate following which the central bank is likely to go for a final 25 bps rate cut in February.
"Governor Rajan surprised with a 50 bps rate cut, over and above our expected 25 bps. Looking ahead, we continue to expect a pause on December 1 and a final 25 bps cut in February," the BofA-ML report said.
In its fourth bi-monthly monetary policy review for the current fiscal year where it affected a higher-than-expected cut of 0.5 per cent in repo rate to 6.75 per cent, the RBI said "inflation is expected to reach 5.8 per cent in January 2016, a shade lower than the August projection".
Retail as well as wholesale price based inflation dived to new lows in August on falling global commodity prices.
Consumer Price Index-based inflation eased to 3.66 per cent in August from 3.69 per cent in the previous month, while inflation based on the Wholesale Price Index tumbled for the 10th straight month to (-) 4.95 per cent as compared to a provisional (-) 4.05 per cent in July.
"The RBI also struck a dovish note assuring that its monetary policy stance will continue to be accommodative. After all, growth risks are rising on poor rains, slow global growth and high rates," BofA-ML said.
According to the RBI, the focus should now shift to bring inflation to around 5 per cent by March, 2017.
Mr Rajan had said that RBI will be vigilant for signs of monetary policy adjustments that are needed to stick to "deflationary path".
The RBI lowered its economic growth forecast for the current fiscal year to 7.4 per cent from its previous projection of 7.6 per cent.
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