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Rate-cut cycle may not start by end of this year: Analysts

Last Updated: Tuesday, July 30, 2013 - 20:17

Mumbai: As the Reserve Bank maintains status quo on key policy rates in its effort to stabilise the rupee, analysts are of the opinion that the rate-cut cycle may not start until the end of this year.

"With the rupee inherently unpredictable and a new Governor likely to be in place in the not-too-distant future, it is hard to have any degree of confidence in India's interest rate outlook," Robert Prior-Wandesforde, Head of India and South East Asia Economics at Credit Suisse, said in a note. "We would suggest the best forecast right now is for an unchanged repo rate between now and the end of the calendar year."

Saying the "RBI Governor ended in a whimper rather than a bang" as all interest rates were left unchanged, the report pointed out that RBI's stance was more dovish than expected.

RBI Governor D. Subbarao is slated to retire before the next mid-quarter review on September 18.

Brokerage firm Nomura, terming the economy and policymakers as caught between a rock and a hard place, said it expects the repo rate to remain on hold this year with a GDP growth at a below-consensus 5 percent in this fiscal.

"We are pencilling in a 75 basis points repo rate cut in FY15," Nomura said in a report.

On the rupee front, it said the currency is fundamentally poised to weaken, adding, "With the RBI keen on defending the currency, further measures to tighten liquidity and potentially even a repo rate hike cannot be ruled out.

"In fact, by sending confusing signals in today's policy on whether it is trying to defend the currency (tighter policy) or wanting to support growth (looser policy), there is a growing risk that the rupee will depreciate and the RBI will need to enact further measures to tighten liquidity, potentially having to hike the repo rate (we assign a 20% probability)," it said.

PTI

First Published: Tuesday, July 30, 2013 - 20:17
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