RBI likely to cut rates by 25bps

RBI likely to cut rates by 25bps
Highlights

Demand for policy rate cut may be considerable, but given the central bank\'s inflation target, rate cut space is scant, and the Reserve Bank is likely to cut only 25 bps in the upcoming monetary policy, a Deutsche Bank report says.

New Delhi: Demand for policy rate cut may be considerable, but given the central bank's inflation target, rate cut space is scant, and the Reserve Bank is likely to cut only 25 bps in the upcoming monetary policy, a Deutsche Bank report says.

According to the global financial services major, with RBI sticking to its goal of maintaining 1.5-2 per cent average real interest rate, which along with an average CPI inflation forecast of 5 per cent for 2016-17 leaves little room for bringing the repo rate below 6.50 per cent.

"If RBI somehow cuts rates by 50 bps on April 5, which is not our base case scenario, probably the central bank will also signal an extended pause, and risks are that market will factor in that the rate cut cycle is over," Deutsche Bank said in a research note.

Meanwhile, RBI Governor Raghuram Rajan on February 2 left the key interest rate unchanged, citing inflation risks amid growth concerns. The report further noted that "while we think RBI will cut only 25 bps in the upcoming monetary policy, we however do not completely rule out the possibility of further rate cuts in the second half of this year".

On CRR, the report noted that "in our view, even if RBI cuts CRR by 50 bps this time, this will be just a one-off, as the CRR rate is already at a historical low, and we don't think RBI will want to drive the rate further lower".

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