New Delhi:Reserve Bank of India (RBI) may finally go for a 25 basis points rate cut in August if a good monsoon contains core inflation at a moderate 4-5%, says a Bank of America Merrill Lynch (BofAML) report.
BofAML had expected a 25 bps rate cut in the 8 February policy meet taking into account the demonetisation shock, low inflation, lower fiscal deficit and a stabilising US dollar.
“We have pushed our next and final 25 bps repo rate cut to August from April, if a good monsoon assures moderate 4-5% inflation as we expect,” Indranil Sengupta, India economist at Bank of America Merrill Lynch, said in a research note.
The report noted that the RBI has also cut down inflation risks broadly in alignment with its own forecasts. “We are forecasting 3.3% in January, see a 50 bps downside risk to our 4.6% March forecast and 4% in the first half of 2017,” BofAML said, adding core inflation remains at a benign 4.6%.
The central bank in its policy review meet on 8 February kept key interest rate unchanged at 6.25% and said that it is awaiting more clarity on inflation trend and impact of demonetisation on growth. The next meeting of the MPC is scheduled on 5-6 April, 2017.
The report further said that lending rates are expected to come off 50-75 bps by September after the RBI emphasised on lower lending rates. “We continue to stick to our call of lower lending rates (50-75 bps by September),” it added.