RBI may go for a 'mea­sured' cut next week: DBS

The Pak Banker - - COMPANIES/BOSS -

In­dia's Re­serve Bank is likely to ap­proach pol­icy eas­ing with cau­tion and go for a mea­sured cut next week amid re­cent bounce in global oil prices and par­tial im­ple­men­ta­tion of a pub­lic sec­tor wage bill, says a re­port.

The re­port by DBS said, a 25 bps cut is largely fac­tored in with few quar­ters also dis­cussing the pos­si­bil­ity of a more ag­gres­sive 50 bps cut, but there is lit­tle scope of a bunched up move.

"Given the re­cent bounce in global oil prices, par­tial im­ple­men­ta­tion of a pub­lic sec­tor wage bill and in­di­ca­tions that the U.S. Fed might re­sume rate nor­mal­i­sa­tion in April/June, we see lit­tle scope of a bunched up move," DBS said in a re­search note. The de­clin­ing in­fla­tion and neg­a­tive in­dus­trial outlook have strength­ened a case for RBI cutting in­ter­est rate in its first bi-monthly mone­tary pol­icy for 2016-17 on April 5.

"The cen­tral bank might see cre­dence in ap­proach­ing pol­icy eas­ing with cau­tion, with a mea­sured cut next week," DBS added. RBI Gover­nor Raghu­ram Ra­jan on Fe­bru­ary 2, left the key in­ter­est rate un­changed cit­ing in­fla­tion risks and growth con­cerns.

Mean­while, RBI Gover­nor Raghu­ram Ra­jan on March 12 said the gov­ern­ment stick­ing to fis­cal con­sol­i­da­tion roadmap of re­duc­ing deficit to 3.5 per cent of the GDP in 2016-17 was com­fort­ing. On how that would feed into mone­tary pol­icy, he had said "wait and see".

The re­port fur­ther noted that while low in­fla­tion im­plies a broadly low rate en­vi­ron­ment, the cen­tral bank will be wary of the im­pli­ca­tions on sav­ings, with the of­fi­cial lean­ing for real rates to be main­tained be­tween 1.5-2 per cent.

DBS said price ac­tion will draw di­rec­tion from next week's RBI rate re­view and five state elec­tions start­ing next month.

The month long state elec­tions that kick-start with As­sam and West Ben­gal (first phase) go­ing to the polls on April 4, fol­lowed by Tamil Nadu, Ker­ala and Pondicherry. These five states cu­mu­la­tively make up 51 of the 245 seats in the up­per house of Par­lia­ment.

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