RBI may cut key policy rates by 25 bps in August to cool yields: BofAML

The Reserve Bank of India (RBI) is expected to cut key policy rates by 25 bps in August, which will lead to lending rate cuts, and in turn support growth, says a report.

"We continue to expect RBI to cut 25 bps in August, if rains are normal, to cool yields and signal lending rate cuts, BofAML said in a research note.

According to global financial services major Bank of America Merrill Lynch (BofAML), risks regarding price rise are overdone and March inflation is likely at 4.2 per cent, well within RBI's 2-6 per cent mandate.

As per the global brokerage, fundamentals of the country like growth, money supply and monsoon, point to a benign inflation outlook.

"We expect the RBI MPC to look through the jump in inflation to 5.8 per cent in June, as it is driven by base effects of last year's 1.5 per cent," BofAML said in a research note.

As per Central Statistics Office (CSO) data, retail inflation measured in term of Consumer Price Index fell to a four-month low of 4.44 per cent in February on cheaper food articles and lower cost for fuel.

Retail inflation was 5.07 per cent in January. In February 2017, however, it was 3.65 per cent.

Following the easing of retail inflation in February, there is industry clamour for a rate cut by RBI next month to maintain growth momentum.

The central bank's next monetary policy review is scheduled for April 5. It had kept the policy rate unchanged in its February meeting on fears of inflation.