RBI likely to go for rate cut in December monetary policy review: BofA-ML
New Delhi: The Reserve Bank of India (RBI) is likely to cut rates at its 6 December policy review meet as retail inflation remains muted and the October number is expected to be about 3.3%, says a report.
“We continue to expect the RBI MPC (monetary policy committee) to cut policy rates by 25 bps on December 6, though the October MPC minutes sounded more hawkish than the actual policy,” Bank of America Merrill Lynch (BofA-ML) said in a research note. The core Consumer Price Index (CPI) based inflation, adjusted for house rent allowance, is moderating, and the HRA impact (post 7th Pay Commission), is largely “statistical”, it said.
“We expect October CPI inflation to remain unchanged at 3.3% as in September,” the global brokerage noted. The report further noted that “soft growth” numbers call for lower rates. At 5.5% in old GDP series, even factoring in demonetization shock-led base effects in December and March, India’s GDP growth in this fiscal is expected to be well below the estimated 7% potential. Moreover, a December policy rate cut will signal lending rate cut before the “busy” season.
“... A December 6 cut will still signal a lending rate cut to banks before the ‘busy’ industrial season intensifies in the March quarter, especially as the government is set to recapitalize banks to revive loan supply,” the report noted.
Earlier this month, RBI kept benchmark interest rate unchanged on fears of rising inflation while lowering growth forecast to 6.7% for the current fiscal. It also raised its inflation forecast to a range of 4.2 to 4.6% during the remainder of current fiscal as against 4 to 4.5% previously.