RBI likely to go for 0.50% rate cut in FY17: Morgan Stanley

Zee Media Bureau

New Delhi: The Reserve Bank of India is likely to go for another 50 bps rate cut in the current financial year, global financial services firm Morgan Stanley said Tuesday.

According to the firm, there is room for further easing in monetary conditions as food inflation is likely to stay benign given that the India Met Department has recently released a forecast of above normal monsoon for 2016.

"We revise lower our March 2017 inflation forecast to 4.5 percent from 4.75 percent earlier," Morgan Stanley said in a research note, adding that "based on our inflation forecast and RBI's real rate target of 1.5 percent to 2 percent, we expect another 50 bps of rate cuts in fiscal year 2016-17".

Earlier this month, RBI reduced its policy rate by 0.25 percent to 6.5 percent -- lowest level in more than 5 years.

In all, the RBI reduced the repo rate by 1.25 percent in 2015, but it has been frustrated by commercial banks failure to pass on the full benefits to the wider economy.

And with benign inflation, low IIP and good monsoon prediction, the RBI is likely to cut rate by 0.25 percent during its policy review on August 9, says BofA-ML.

Moreover, the industry still wants further rate cuts from RBI to boost investment.

However, in terms of pace of rate cuts, Morgan Stanley said that RBI is expected to wait for the onset of the rainfall season to see trend in actual inflation, and hence the Central Bank is likely to keep rates unchanged in the next policy meeting on June 7.

With Agency Inputs