'RBI may slash policy rate by 25 bps'

'RBI may slash policy rate  by 25 bps'

Bank of America Merrill Lynch (BoA-ML) believes that RBI is likely to cut rates by 25 basis points, next week.

Interestingly, this call comes at a time when most brokerages and economists are expecting a status quo by the central bank chief in its monetary policy review on February 2.

“We continue to call for a 25 bps repo rate cut by RBI, on February 2. First, inflation should meet Rajan’s under-6 per cent January 2016, mandate. Food prices are peaking off in January. Second, growth remains weak. Our lead indicators are tracking growth at 5 per cent in the old GDP series in the December quarter. Third, a rate cut will support the rupee by attracting FPIs equity inflows into rate sensitives and FPI G-sec inflows in search of capital gains. Fourth, the fiscal deficit is well under control,” BoAML said in a note.

“Finally, a high risk-free rate — 10-year bond yield at a still-high 7.6 per cent levels – also prevents lending rate cuts. On balance, we continue to expect the RBI to OMO additional $10 billion by March, as they have supplied only $9 billion of the permanent liquidity of the $30 billion we estimate needed in FY16. A CRR cut also helps,” BoAML added.

Goldman Sachs expects RBI to maintain status quo but announce some liquidity easing measures. “At its policy meeting on February 2, we expect the RBI to remain on hold on the repo rate, but ease liquidity through a cash reserve ratio (CRR) cut of 50 bps, as well as continued open market operations (OMOs). We also expect the accompanying statement to be dovish,” Goldman Sachs said.

DH Newsletter Privacy Policy Get top news in your inbox daily
Comments (+)