RBI likely to cut key rate by 25 bps: Icra
Mumbai: The Reserve Bank is likely to reduce short-term lending rate (repo) by 25 basis points (0.25 percent) in next week's monetary policy review in view of the recent decline in inflation, rating agency Icra said on Friday.
"Following the recent easing in headline wholesale inflation and core inflation, Icra expects the RBI to decrease the repo rate by 25 bps in the policy review on Tuesday," it said in a report.
As per the rating agency, the space available for the RBI is likely to be limited to a total of 50 bps during the fourth quarter of FY'13 and a further of 50 bps during the first half of the next fiscal.
There is less possibility of a reduction in the CRR (cash reserve ratio) on January 29, said the report.
"The likelihood of a cut in the CRR on Tuesday is low" as utilisation under the LAF corridor is expected to remain substantial in the fourth quarter. Any spike in liquidity deficit is likely to be moderated through OMOs, it said.
On the slowing deposit growth, the report said it would be in the range 12.5-14 percent in FY'13.
"Even as banks find it difficult to raise retail deposits, the fall in issuance of certificates of deposit and bulk deposit mobilisation, following the Finance Ministry's recent instruction to public sector banks on containing their bulk deposits, will further put pressure on deposit mobilisation during FY'13. Overall, we expect deposits to expand by around 12.5-14 percent in FY13."
Banks have posted a deposit growth of 11 percent as of December as against the revised growth forecast of 15 percent by the RBI, it added.
On the credit growth, Icra said it is likely to be around 14.5 percent to 15.5 percent in FY'13, lower than the RBI forecast of 16 percent. In this perspective, it said banks are likely to lower lending rates as policy rates ease in Q4 of of this fiscal.