New Delhi: The Reserve Bank is likely to cut key interest rates by 0.50 percent, to 7.5 percent, in the forthcoming monetary policy review on easing inflationary pressures, says a Credit Suisse research report.
Positive surprises in the recent WPI inflation data ‘both headline and core’ and likely ebbing of inflationary pressures may prompt the central bank to cut key interest rate in its next policy meet, it said.
"Following a break of nine months, we expect the Reserve Bank to cut the repo rate at its January 29 meeting, probably by 50 basis (0.5 percent) points to 7.5 percent," it said.
According to the report: "The move would be best described as a belated pat on the government's back following its September reform announcements."
Going forward, the repo rate is likely to drop to 6.75 percent by July 2013, as the core and headline WPI inflation is likely to drop below 4 percent and 6 percent respectively by mid-2013, Credit Suisse Research Analyst Robert Prior-Wandesforde said in the research note.
Retail inflation, based on consumer price index (CPI), remained close to double digits at 9.90 percent in November, while, the WPI inflation in November stood at 7.24 percent.
Though these levels are much above the Reserve Bank's comfort zone of 5-5.5 percent, inflation is showing some signs of easing in recent months.
"We doubt that a January cut requires inflation to drop further from here," the report said.
On October 30, RBI had pointed out that "the baseline scenario suggests there is a reasonable likelihood of further easing in the January-March quarter of 2013".
In the mid-quarter monetary policy review on December 18, RBI kept key interest rates unchanged.
It left the short-term lending (repo) rate and the cash reserve ratio -- the amount of deposits banks have to park with RBI -- unchanged at 8 percent and 4.25 percent, respectively.