<p>Fears of the Reserve Bank going for a "rate hike" are overdone and there is still room for a 25 bps rate cut in the August monetary policy review, provided rains are normal, says a report.</p>.<p>Global financial services major Bank of America Merrill Lynch (BofAML), termed the latest RBI policy as "balanced" and said that macro risks are getting overdone in the government securities (G-sec) market.</p>.<p>In its 6th and the last bi-monthly monetary policy review of the current fiscal, 2017-18, RBI yesterday kept interest rates unchanged for the third time in a row saying that higher government spending would accelerate inflation and warned of risks from a wider fiscal deficit.</p>.<p>"We continue to think that market concerns of a rate hike are overdone after the conference calls shed more light on the bias, which seemed soft," BofAML said in a research note adding that "we still expect a 25 bps August RBI rate cut".</p>.<p>The Reserve Bank did not go in for a hike in key rates, despite expecting a surge in inflation going forward, as the price rise is being driven by higher house rent allowance (HRA) to government employees, Governor Urjit Patel had said.</p>.<p>Nearly 0.35 percent of current inflation is due to the HRA hikes as per the 7th pay panel recommendations, he said.</p>.<p>BofAML expects January CPI inflation at 4.9 percent down from 5.2 percent in December.</p>.<p>The RBI has upped its inflation forecast to 5.1 percent for the current fourth quarter of the 2017-18 fiscal ending March 31. It expects inflation to firm up further to 5.1-5.6 percent in first half of the next fiscal, before cooling down to 4.5-4.6 percent in the second half.</p>.<p>The report, however, noted that core inflation (excluding food, fuel and HRA) is already hovering about a reasonable 4.2 percent.</p>.<p>"We continue to expect the RBI to cut rates by 25 bps in August if we see normal rains," it added.</p>
<p>Fears of the Reserve Bank going for a "rate hike" are overdone and there is still room for a 25 bps rate cut in the August monetary policy review, provided rains are normal, says a report.</p>.<p>Global financial services major Bank of America Merrill Lynch (BofAML), termed the latest RBI policy as "balanced" and said that macro risks are getting overdone in the government securities (G-sec) market.</p>.<p>In its 6th and the last bi-monthly monetary policy review of the current fiscal, 2017-18, RBI yesterday kept interest rates unchanged for the third time in a row saying that higher government spending would accelerate inflation and warned of risks from a wider fiscal deficit.</p>.<p>"We continue to think that market concerns of a rate hike are overdone after the conference calls shed more light on the bias, which seemed soft," BofAML said in a research note adding that "we still expect a 25 bps August RBI rate cut".</p>.<p>The Reserve Bank did not go in for a hike in key rates, despite expecting a surge in inflation going forward, as the price rise is being driven by higher house rent allowance (HRA) to government employees, Governor Urjit Patel had said.</p>.<p>Nearly 0.35 percent of current inflation is due to the HRA hikes as per the 7th pay panel recommendations, he said.</p>.<p>BofAML expects January CPI inflation at 4.9 percent down from 5.2 percent in December.</p>.<p>The RBI has upped its inflation forecast to 5.1 percent for the current fourth quarter of the 2017-18 fiscal ending March 31. It expects inflation to firm up further to 5.1-5.6 percent in first half of the next fiscal, before cooling down to 4.5-4.6 percent in the second half.</p>.<p>The report, however, noted that core inflation (excluding food, fuel and HRA) is already hovering about a reasonable 4.2 percent.</p>.<p>"We continue to expect the RBI to cut rates by 25 bps in August if we see normal rains," it added.</p>