RBI likely to cut rates in Dec 6 policy review: Report

The Reserve Bank is likely to cut rates at its December 6 policy review meet as retail inflation remains muted and the October number is expected to be about 3.3 percent, says a report.

"We continue to expect the RBI MPC 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 (BofAML) 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 percent as in September," the global brokerage noted.

The report further noted that "soft growth" numbers call for lower rates.

At 5.5 percent in old GDP series, even factoring in demonetisation shock-led base effects in December and March, India's GDP growth in this fiscal is expected to be well below our estimated 7 percent 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 recapitalise banks to revive loan supply," the report noted.

Earlier this month, Reserve Bank of India kept benchmark interest rate unchanged on fears of rising inflation while lowering growth forecast to 6.7 percent for the current fiscal.

It also raised its inflation forecast to a range of 4.2 to 4.6 percent during the remainder of current fiscal as against 4 to 4.5 percent previously.