RBI likely to cut policy rates by 0.25% on June 2: Citi

According to Citigroup report, lending rates have softened by 15-25 bps since the April policy

The Reserve Bank is likely to cut policy rates by 0.25 per cent in its upcoming policy review meet next week, a Citigroup report said today.

According to the global financial services major, there is a strong case for 25 basis points (bps) cut in interest rates, especially since macroeconomic data such as PMI and IIP, non-oil exports and credit growth has not been encouraging.

"Following status quo in the April meeting, we expect RBI to cut policy rates by 25 basis points in its upcoming June 2 meeting (from 7.5 per cent to 7.25 per cent)," Citigroup India Economist Anurag Jha said in a research note.

The report pointed out that since the April policy, lending rates have softened by 15-25 bps.

Despite unseasonal rains, the CPI inflation continued to undershoot RBI's projected trajectory and there has also been supply-side reforms.

"We expect RBI to resume its easing cycle in the June 2 policy with a 25 bps cut," Citigroup said, adding that given the ongoing trends of structural reforms coupled with cyclical easing of monetary policy and range-bound commodity prices, growth is likely to revive to 8 per cent in next fiscal.

The central bank has lowered its policy rate twice so far in 2015, but maintained a status quo in its last monetary policy review on April 7 on fears of unseasonal rains impacting food prices.

The next review meeting is scheduled on June 2, although the previous two cuts have taken place outside the scheduled policy reviews.

The report further noted that though this rate action is widely expected, the policy will be keenly watched for areas where there is not as much of a consensus like -- forward guidance and transmission.