The Reserve Bank is likely to cut the repo rate for the sixth time in a row on Thursday to support the economy which has hit a 26-quarter low at 4.5 percent in the second quarter, and may pause to see transmission, says a report.
At 4.5 percent the September quarter GDP is the lowest since March 2013 quarter, when it was printed at 4.3 per cent.
"Consistent with the MPC maintaining an 'accommodative stance as long as it is necessary to revive growth...', we expect another 25 basis points cut at the December 5 meeting, before the RBI pauses to see how the cumulative cuts transmit through the economy," Australian brokerage Macquarie said in a report a day ahead of the policy review.
The Reserve Bank has reduced repo rate by 135 basis points since February, but banks have passed on the only 29 bps since then.
"We think such a wait-and-see approach is appropriate given the monetary policy lags to-date and the recent RBI efforts to enhance transmission by requiring lending rates to be linked to an external benchmarks," the report said.
It said recent government measures such as corporate tax cuts and a relaxation in FDI rules to encourage investment, policies to resolve stalled realty projects and boost export, may also help shore up growth and support a pause in the easing cycle.
"We expect this to help put a floor under growth, with a gradual recovery resuming thereafter, aided by an improvement in the external environment on the back of reduced trade policy uncertainty," it said.
The report, however, said with a turnaround in consumer and business sentiment yet to occur, risks to growth are tilted to the downside in the near-term.
In the medium-term, it sees the risks to be more evenly balanced. "Downside risks primarily relate to further stress in the NBFC sector, renewed trade tensions and geopolitical risks, while upside risks can stem from stronger-than-expected global growth or if monetary and government measures prove more stimulatory than expected," the report said.