RBI may cut rates by 25 bps; all eyes on CPI target

The Reserve Bank of India is expected to slash its key rates by 25 basis points in its Monetary Policy meet here today.

All eyes will be on Governor Urjit Patel's commentary on the inflation target and how he approaches the ultimate CPI goal of four percent.

According to a CNBC-TV18 poll, around 40 percent of the respondents suggest that the RBI may slash repo rate a total of 25 basis points in 2017, while the rest believe RBI to cut by 50 basis points this year.

However, the Consumer Price Index (CPI) based inflation came down to 3.6 percent in December due to decreased spending by cash strapped citizens in the aftermath of demonetisation.

This figure is lower than the Urjit Patel's target of four percent, which he had stressed on in the last meet. The market will be keenly watching RBI's guidance on inflation estimates for financial year 2018 and RBI's view on the India's gross domestic product (GDP) in the current and next fiscal.

Around 60 percent of the street favors a change in the March 2017 inflation target of five percent to 4.5-4.9 percent while the rest feels it may remain unchanged.

Also, only 20 percent of the market experts feel that next fiscal's inflation may hover above the five mark at around 5.1-5.5 percent, while the remaining feel it would remain well below five percent.

Most (around 70 percent) say the RBI will not cut rates if it aims for a four percent CPI inflation by the start of FY18.

But they also predict that RBI will not be giving any timeline to reach its target of four percent inflation in the meet. There is a consensus among the respondents that RBI's stance on neutral liquidity will remain unchanged.