RBI likely to cut policy rates in February, April, not in December: BofA-ML

The Reserve Bank is expected to maintain a status quo in the upcoming December meet and will go for a 25 bps rate cut each in its February and April policy review meeting, says a Bank of America Merrill Lynch report.

PTI| Updated: Nov 07, 2016, 14:15 PM IST
RBI likely to cut policy rates in February, April, not in December: BofA-ML

New Delhi: The Reserve Bank is expected to maintain a status quo in the upcoming December meet and will go for a 25 bps rate cut each in its February and April policy review meeting, says a Bank of America Merrill Lynch report.

According to the global financial services major, the accommodative policy stance of the central bank would be largely driven by weak global growth and the fact that inflation is expected to be on track to its March-2017 target of 5 percent.

"We expect the RBI MPC to pause in December and cut 25 bps each in February and April," Bank of America Merrill Lynch said in a research note.

The report noted that there are 'five compelling reasons' for a 50 bps RBI rate cut by April. First, growth is weak at sub-5 percent in old GDP series (7.1 percent in new GDP), well below its estimated 7 per cent potential, second, inflation will likely slip to 4.1 percent in October, on course to the RBI's 5 percent March-2017 target.

Other reasons being, 50 bps RBI rate cut in early 2017 should send a clear signal to banks to cut lending rates, while, RBI rate cut expectations should support the Indian Rupee (INR) by attracting Foreign Portfolio Investors inflows into bonds and rate sensitives.

Finally, the bankruptcy code and Goods and Services Tax (GST) legislation should convince the RBI MPC of the government's pursuit of reforms.

MPC, which has three members nominated by the government and the rest from RBI, lowered repo rate to 6.25 percent from 6.50 percent at the end of two-day deliberations on October 4.
The next meeting of the MPC is scheduled on December 6 and 7.