RBI may cut another 25 bps before Dec amid concerns over growth: Study

After an unconventional 35 basis points reduction in the repo rate, the Reserve Bank is likely to go in for another 25 basis points rate reduction in the December quarter amid growing concerns over growth, says a report.

In the third bi-monthly monetary policy review, the central bank cut the repo rate for the fourth time in a row to 5.40 percent-- a nine-year low, and retained neutral stance going forward.

The central bank also revised downwards the projection of GDP growth to 6.9 percent for FY20 from 7 percent in its June estimate.
 

"We now see a high probability of another cut by 25 basis points rate cu in Q4 of 2019," Goldman Sachs said in a research report Thursday.

The RBI also said the CPI inflation is projected at 3.1 percent for second quarter of FY20 and 3.5-3.7 per cent for the second half.

Beyond the fourth quarter of 2019, the report does not see space for further cuts primarily as headline inflation is likely to pick up and cross the 4 percent target by the end of the year, and output gaps are also estimated to close.

It further said the RBI has been increasingly responsive to global and domestic growth concerns.

"In light of growing global trade policy risks, and the possibility of a no-deal Brexit, risks are likely skewed towards further reduction in the rates," the report said.

Markets still think there would be space for another 50 bps reduction in the policy rates over the next two years, it added.