RBI likely to reduce repo rates by 25 bps on Oct 4: Goldman Sachs

The RBI is expected to go for a further rate cut in the ensuing monetary policy review meet amid weak economic activity and benign inflation, Goldman Sachs said in a report on Monday.

According to the global financial services major, the RBI is likely to cut policy rate by 25 bps in October, and another 25 bps in December.

"Based on the weakness in activity, still benign inflation, and soft global growth with central banks around the world in an easing mode, we believe the RBI MPC will almost certainly cut the policy repo rate on October 4th," Goldman Sachs said in a report.

The central bank, which has already reduced the key policy rate four times in the current calendar year, is scheduled to announce its next bi-monthly monetary policy on October 4.

As per the report, the easing cycle is expected to pause after an additional 50 bps as by December headline CPI inflation is expected to stand at close to 4 per cent, diminishing a case for further easing to continue.

Besides, the Reserve Bank of India (RBI), which has been increasingly responsive to global and domestic growth concerns, may get some comfort from the recent cut in corporate tax rates, the report noted.

According to Goldman Sachs RBI is expected to reduce its growth forecasts from 6.9 per cent to somewhere in the range of 6.0-6.5 per cent.

"The downward revision mainly reflected lower-than-expected activity indicators in the first quarter of FY20, but also lower sequential momentum in the second quarter, compared to our earlier assumptions," the report noted.

India's economic growth has slumped for the fifth straight quarter to an over six-year low of 5 per cent in the three months ended June as consumer demand and private investment slowed amid deteriorating global environment.