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The RBI is likely to cut its key lending rate by another 25 basis points (bps) in backdrop of low inflation and slowing industrial production.

The central bank is scheduled to go for its first bi-monthly monetary policy review on Thursday.

In February, RBI cut repo rate by 25 bps to 6.25 per cent. It was the first repo cut in one and a half years.

Both retail and wholesale prices have shown a declining trend on a year-on-year basis.

Besides, there has been a sharp decline in manufacturing output, which slowed industrial production in January to 1.7 per cent.

"Low inflation has opened up room for the Reserve Bank of India to adopt a more accommodative stance to support faltering growth. The real question is how deep or shallow this rate cut cycle is going to be," an HDFC report said.

"So, the challenge for the central bank would now be to discern whether we have moved into a lower inflation bracket permanently or is this a temporary phenomenon," it added.

Ratings agency ICRA said in a report that it expects "a 25 bps rate cut in the upcoming meeting of monetary policy committee".

The stock markets touched an all-time high crossing the 39,000-mark on Monday on expectations of an RBI rate cut. 

"Pre-election rally extended to the new financial year with an increase in prospects of political stability, rate cut expectation from RBI and improvement in GST collection in March," said Vinod Nair, Head of Research, Geojit Financial Services.

According to Sanjay Chamaria, VC and MD Magma Fincorp: "The RBI is likely to cut interest rates by 25 bps in the first monetary policy of the fiscal. An accommodative stance is essential given the receding inflation, risks to the downside of growth domestically and fear of a global slowdown."

"The liquidity environment for non-banking financial companies has improved, although remains fragile and there is a need to address the loss of confidence by investors in them by aiding system liquidity."

In February, the apex bank in a surprise move brought down home and auto loans as it went the whole hog by not only lowering its key lending rate by 25 bps to 6.25 per cent, but also turned accommodative, changing its monetary policy stance from "calibrated tightening" to "neutral".

Later during the month, the MPC minutes revealed that weak growth impulses along with expectations of slipping food and fuel prices led the RBI to cut its key lending rate.

Published On : 02-04-2019

Source : Sme Times

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