RBI may cut key policy rates by 0.50-0.75% this fiscal
New Delhi: The Reserve Bank is likely to cut the key policy rate by 50-75 basis points by March 2014, say experts.
The high volatility in rupee and the upward pressures on inflation in June have, however, considerably reduced the possibility of the RBI easing rates at its first quarter monetary policy review on July 30.
The industry has been demanding a cut in key policy rate to boost economic activities. Industrial output contracted by 1.6 percent in May on poor show by the manufacturing and mining sectors.
"We continue to believe that a flow of poor economic growth data and a generally range-bound inflation trajectory over coming months will reopen space for further monetary easing during the latter months of 2013," Barclays said in a research note.
Bank of America Merrill Lynch said that in view of the sharp depreciation in the domestic currency, interest rate cuts may be delayed and expect RBI to retain 'pause' in July. At the mid-quarter review last month, it had kept key rates unchanged.
The rupee has depreciated by more than 10 percent in the last one month and crossed the psychological level of 60/USD in June end.
"We think, slowing growth and falling CPI will help the RBI cut rates in the last quarter of the year. We would still expect a 50-75 bps cut in rates by March, 2014," said BofA-ML.
According to Barclays, for RBI, while its current focus is containing the rupee weakness, on a more medium-term perspective, reviving growth in a non-inflationary manner will remain a major concern.
"As such, we think monetary policy calibration will be biased towards further easing, rather than tightening," it said.