RBI may cut key policy rate by 0.75% in 2012: Nomura

Investment banker Nomura expects the Reserve Bank to cut key policy rate by 0.75 percentage point, instead of 1 percentage point forecast earlier, in 2012 due to high crude oil prices.

"We now expect 75 basis points (bp) of rate cuts in 2012, compared to 100 bp earlier, due to higher oil prices, the RBI's changing policy reaction function and its higher tolerance for slow growth," Nomura said in a statement.

Pushed by Iran nuclear standoff, global crude oil prices touched $125 per barrel last week.

"We continue to believe that the first rate cut is likely in April as the government consolidates its fiscal deficit in tomorrow's budget, as core inflation moderates further in March and as rates need to return to a neutral setting," it said.

Meanwhile, RBI today left its repo rate and the cash reserve ratio (CRR) unchanged at 8.50% and 4.75%, respectively.

Even though slow growth warrants monetary easing, the RBI decided otherwise as upside risks to inflation have risen due to higher crude oil prices, fiscal slippage, INR depreciation and continued suppressed inflation, it said.

It expects inflation to average an above-consensus 7% 2012-13, though there could be further upside risk depending on the extent of the pass-through of higher oil prices.