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RBI may cut rates on Dec 6 as retail inflation remains muted: BofA-ML

CPI based inflation, adjusted for house rent allowance is moderating, and the HRA impact is largely 'statistical': Report

Press Trust of India  |  New Delhi 

RBI, reserve bank of India

The Reserve is likely to cut rates at its December 6 policy review meet as retail remains muted and the October number is expected to be about 3.3 per cent, says a report.

"We continue to expect the MPC to cut policy rates by 25 bps on December 6, though the October MPC minutes sounded more hawkish than the actual policy," of America Merrill Lynch (BofAML) said in a research note.

The core Consumer Price Index (CPI) based inflation, adjusted for house rent allowance is moderating, and the HRA impact (post 7th Pay Commission), is largely "statistical", it said.

"We expect October to remain unchanged at 3.3 per cent as in September," the global brokerage noted.

The report further noted that "soft growth" numbers call for lower rates.

At 5.5 per cent in old series, even factoring in shock-led base effects in December and March, India's growth in this fiscal is expected to be well below our estimated 7 per cent potential.

Moreover, a December policy rate cut will signal lending rate cut before the 'busy' season.

"...a December 6 cut will still signal a lending rate cut to banks before the 'busy' industrial season intensifies in the March quarter, especially as the government is set to recapitalise banks to revive loan supply," the report noted.

Earlier this month, of kept benchmark interest rate unchanged on fears of rising while lowering growth forecast to 6.7 per cent for the current fiscal.

It also raised its inflation forecast to a range of 4.2 to 4.6 per cent during remainder of current fiscal as against 4 to 4.5 per cent previously.

First Published: Mon, October 30 2017. 14:13 IST