RBI may slash rates by 0.75% before next policy review on April 3: BofA

The Reserve Bank of India may go for a rate cut before the next scheduled policy review on April 3, and is likely to slash rates by 0.75 percentage point in 2020 as inflation ebbs, a foreign brokerage said on Friday.

Central banks have been cutting rates and injecting liquidity to counter economic slowdown because of the coronavirus pandemic.

"We expect the RBI MPC (monetary policy committee) to cut rates by 25 per cent before or on April 3 with inflation having peaked," Bank of America Securities said in a report released a day after official data said there has been a cool-off in inflation to 6.6 per cent in February.

It added that the RBI, which is contract-bound to ensure inflation is between 2-6 per cent, will also take the call on a rate cut on falling global growth and further easing by the US Fed on top of the surprise 0.50 per cent cut.

"An immediate RBI rate cut will lower lending rates for banks' MSME/retail/mortgage loans before the 'busy' industrial season ends in March," the brokerage said.

Its peer Barclays had also opined on Thursday that there can be a possibility of a rate cut between the policies.

After the cut ahead of the April 3 policy or on that date, RBI will deliver another rate cut at the June review and go for a pause after cutting again in October, it said, lowering its inflation expectations for FY21 to 4 per cent from 4.8 per cent earlier.

BofA said the core inflation is well contained at 3.6 per cent as per the latest data print.

On growth, which seems to be accorded priority by the central bank as seen in the actions over the last one year, the brokerage said the March quarter GDP expansion will come at an "anemic" 4.3 per cent with downside risks.

It said that the growth number for FY21 will come at 5.4 per cent, up from the 4.8 per cent in FY20.

Amid talk of a review of the flexible inflation targeting framework, it said the revised contracts will introduce growth and financial stability as co-objectives of monetary policy along with price stability.

The brokerage also said that there is a likelihood of a 0.3 per cent slippage in the 3.5 per cent fiscal deficit target set in the budget, but underlined that this is below the 4.5 per cent long-run average.