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Low inflation to spur rate cut in RBI's Aug 2 Policy review: Reuters poll

Economists also predicted RBI cutting its repo rate to 6%, reverse repo rate to 5.75%

Reuters  |  Bengaluru 

People walk past a barricade inside the Reserve Bank of India (RBI) headquarters in Mumbai. (Photo: Reuters)
People walk past a barricade inside the Reserve Bank of India (RBI) headquarters in Mumbai. (Photo: Reuters)

The Reserve of (RBI) is expected to cut when it meets on Aug 2, responding to an rate running well below target, but an improving economy is likely to keep it on the sidelines for a long time thereafter, a Reuters poll showed.

A significant moderation in retail over the past three months has reinforced calls for further monetary policy easing from the central bank, which changed its stance to neutral from accommodative at the start of the year.

Weak consumer spending following the government's ban on high-value currency notes late last year as well as lower food prices have kept below the RBI's 4 per cent mid-term target for the past eight months.

eased to its slowest pace in more than five years in June.

"The recent sharp decline in has clearly caught the by surprise. Clearly, the stage is set for another rate cut," wrote Kunal Kumar Kundu of Societe Generale.

"Normal monsoon, falling crude prices, weak capacity utilisation and a strong currency all suggest that India's headline does not face much tailwind."

Forty of 56 economists polled July 24-27 predicted the cutting its repo rate by a quarter percentage point to 6.00 per cent on Wednesday. Two respondents said the central would cut the rate by 50 basis points.

Only 14 respondents predicted no change.

The is also expected to trim the reverse repo rate by an equal measure to 5.75 per cent. The central last cut its key in October 2016.

After the expected reduction on Aug. 2, however, the is forecast to stand pat on policy at least until 2019 because economic growth is set to accelerate. Indian stocks are trading at a record high, partly in anticipation of that.

A separate Reuters poll taken last week showed the will expand 7.3 per cent this fiscal year, reclaiming its position as the fastest growing major global economy, partly propelled by benefits from a new tax system.

A few also said the new goods and services tax - which replaces multiple taxes levied by central and state governments in order to facilitate collection and ease of doing business - might lead to an increase in services prices.

That could push up core inflation, which has remained above 4 per cent for years, and has been a key concern for the

"This could be the final rate cut in the current fiscal (year) as seems to bottom out ... the trajectory may witness (an) upward trend from July 2017," said Himanshu Varshney, research analyst at AK Capital.

is forecast to rise to 4.7 per cent next year, according to the latest Reuters poll

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