DH poll: Another 25 bps cut in repo rate likely

The Reserve Bank of India is likely to announce another 25 basis points (bps) cut in repo rate in its bi-monthly policy review meeting that will conclude on Friday.

An overwhelming majority of the economists and analysts polled by DH ahead of the RBI’s monetary policy committee (MPC) meeting expect a rate cut of 25 bps. Of the 14 analysts tracking the Reserve Bank, 86% or 12 of them suggested that the central bank would go for a 25 bps cut in the key policy rate. 

The central bank, in its August policy meeting, broke the tradition of tweaking repo rate by the multiples of 25 bps, by slashing the key policy rate by 35 bps. However, analysts are of the opinion that the unconventional rate cut wouldn’t be repeated again.

“See it can be anything. Last time it was 35 bps, but that did not have much impact till now. Here I think it’s more to support the steps taken by the government in the last one month. We are looking at a 5% repo rate by the end of the year,” Madan Sabnavis, Chief Economist, CARE Ratings said.

On the other hand, Prachi Mishra of Goldman Sachs is of the opinion that the central bank will cut rate by 25 bps in this meet, followed by another 25 bps in December. The multinational investment banking behemoth believes that the domestic economic conditions continue to be soft, and inflation is expected to remain below the RBI’s medium-term target of 4%.

However, there are other economists like Nikhil Gupta of Motilal Oswal and Suvodeep Rakshit of Kotak Institutional Equities, are of the opinion that the central bank would slash the key policy rates by 40 bps. “We pencil in a 40 bps of rate cut which should be a signal to the market that the MPC is not quite done as it front-loads the remaining couple of rate cuts in the cycle. Further, with the start of the external benchmarked loans in October, a larger rate cut will help in the quicker transmission of rate cuts even as the non-benchmarked loans continue to factor in the past rate cuts,” Rakshit said, justifying his assumption.

The RBI governor Shaktikanta Das, in each of the policy meets that he has chaired has announced a rate cut -- amounting to a total of 110 bps till now in 2019. Some, like Arun Singh of Dun and Bradstreet, expect the central bank to focus more on the transmission of the interest rates.

Growth Forecast

The central bank is also expected to slash the growth estimates for the current financial year, as hinted by Das. This would also be the third time in the current financial year that the central bank would be lowering its growth estimates.In April, RBI had lowered the growth estimates for FY 2020 to 7.2% from 7.4%. In August it lowered the growth estimates by 30 bps to 6.9%. The central bank is expected to further slash it in the range of 6.4% to 6.8% in the October meet.

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