RBI may hold rates in April, to go for 25 bps cut by June: DBS

Earlier, the central bank surprised markets by reducing benchmark interest rate by 0.25% to 7.5%

The Reserve Bank of India is likely to hit the pause button in its policy review meet on April 7, but might go for a 25 basis points cut by June, says a report by DBS.

According to the financial services firm, after surprise reduction in policy rates in March, no rate cut move is expected in the April 7 annual policy meet of the central bank.

"After the off-cycle cut in March, no move is likely in April, but accompanying remarks will be of interest," DBS said in a research report.

The Reserve Bank had surprised markets by reducing the benchmark interest rate by 0.25% to 7.5%.

"Looking ahead, we see room for another 25 bps cut by June and pause thereafter, in the backdrop of a likely US rate hike in the second half of 2015, a narrowing output gap and our in-house expectations for gradual rupee depreciation in the quarters ahead," it added.

The rate cut in March was the second time in two months that the RBI had cut interest rates outside the regular policy reviews. Last time on January 15, it had cut the repo rate by 0.25% to 7.75%.

On inflation, the report said the recent bout of unseasonal rains resulting in damage of select winter crops might stoke worries over increase in food prices. Moreover, oil prices have also bottomed out in recent weeks, limiting further downside in inflation prints.

Inflation measured on wholesale price index (WPI) was at (-) 0.39% in January, (-) 0.50% in December and (-) 0.17% in November.

With inflation dropping to record lows, industry demanded further easing of interest rates to boost growth.