A foreign brokerage, on Monday, said the Reserve Bank of India will cut its key policy rates by another 25 basis points, after Governor Shaktikanta Das’ weekend speech focussing on ways to revive growth.

Speaking at the annual meetings of the IMF in Washington over the weekend, Das had stressed on reviving growth when inflation is trending below targets.

“We now expect the monetary policy committee to cut rates by 0.25 per cent to 5.75 per cent on June 7,” Bank of America Merrill Lynch said in a note. If done, this will be the third straight reduction, taking the quantum of reduction in six months to a hefty 75 bps.

The Wall Street brokerage had earlier said the next cut may be either in June or in August, and had added the rate action hinges on rains.

In his speech, Das also presented “out-of-the-box” ideas such as questioning why a rate cut should be limited to multiples of 0.25 per cent, and why a central bank cannot cut by 0.35 per cent, the brokerage said.

It can be noted that the RBI is mandated to contain inflation at 4 per cent in the medium term with a 2 percentage point leeway on either side. Lower inflation in recent months has resulted in the bank cutting rates by 0.50 per cent in 2019 so far.

The brokerage said headline inflation will come in at 2.6 per cent in April as food prices will continue to fall.

Core inflation, excluding food and fuel, is also expected to peak off to 4.8 per cent in April from 5.1 per cent in January, it said.

“Fundamentals do not support higher inflation. Tight liquidity is reining in demand-side inflation,” it added. Soft commodity prices limit supply side inflation, while global rate pressures are fading with the US Fed turning dovish, it said.

Published On : 15-04-2019

Source : The Hindu Businessline

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