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RBI likely to cut key rates by 0.25% in Feb or Apr policy review: BofAML

For the second time in a row, the central bank maintained status quo on all key policy rates in the fifth bi-monthly monetary policy review announced Wednesday

Press Trust of India  |  Mumbai 

News digest: RBI move impact, payroll additions, US stocks fall, and more

The (RBI) may cut key policy rates by 0.25 per cent either at the upcoming in February or the one after that in April, Bank of America Merrill Lynch said Thursday.

For the second time in a row, the central bank maintained status quo on all key policy rates in the fifth bi-monthly monetary announced on Wednesday.

It had raised the repo rate, or the rate at which the lends short-term money to the banks, twice by 0.25 per cent during its June and August policy reviews.

"We expect the (monetary policy committee) to roll back at least 0.25 per cent of the 0.50 per cent rate hike, in February or April," the American brokerage said in a statement.

It said although retained the "calibrated tightening" stance, said there is room for commensurate policy action opens up if risks to their inflation forecast do not materialise.

It can be noted that the RBI lowered its second half inflation estimate to 2.7-3.2 per cent, from the earlier 3.9-4.5 per cent earlier.

"If the upside risks we have flagged do not materialise or are muted in their impact as reflected in the incoming data, there is a possibility of space opening up for commensurate policy actions," Patel had said Wednesday, hinting of a hike.

The risks include food prices, impact of minimum support prices hike on inflation, crude prices and global financial markets.

The brokerage said the monetary policy committee's inflation risks are "proving overdone" and the headline price rise number is expected to slip to 2.8 per cent on low inflation on the agricultural front.

The headline inflation will come at 3.7 per cent for in December and the second half average will be 3.5 per cent, which is lower than the 4 per cent medium term target for RBI, the brokerage said, pointing it as a key factor it will monitor to decide whether the cut happens in February or April.

Moreover, it said growth is expected to be impacted due to the tight liquidity, which will aggravate the base effects, hinting that accommodating the growth concerns may lead to the decision.

The wheat sowing is also a cause of concern, it said, adding that the water levels in dams will be of help.

The fourth factor determining the rate cut timing will be the oil prices, it said.

The brokerage said it expects RBI to step up injection through its open market operations, to Rs 50,000 crore a month during the March quarter.

First Published: Thu, December 06 2018. 14:45 IST