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RBI might reduce its key policy rates twice this year, says BofA-ML

The RBI surprisingly cut its key lending rate by 0.25% to 6.25% as it sought to up the sagging growth amid a slowdown in inflation at its Feb 7 policy meet

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The central bank also said there should be no concept of “guaranteed bonuses” in the compensation plan

Press Trust of India Mumbai
The Reserve Bank will reduce its key policy rates twice this year as it accommodates the concerns about growth amid the cooling price situation, says a brokerage report.
The monetary authority will cut the key policy rates at the forthcoming policy review in April, and effect another reduction in either June or August depending on monsoons, Bank of America Merrill Lynch (BofA-ML) said in a report Tuesday.
The RBI surprisingly cut its key lending rate by 0.25 per cent to 6.25 as it sought to up the sagging growth amid a slowdown in inflation at its February 7 policy.
The analysts at the Wall Street brokerage pointed to governor Shaktikanta Das' vote for a rate cut and the justification given for its expectation of two more rate cuts.
"As per the monetary policy committee minutes, Das said 'the time is opportune to seize the initiative and create a congenial environment for growth'," it said.
It said inflation will come in at 4.7 per cent in FY20, though more than the 3.5 per cent in FY19 well within the target range of 2-6 per cent mandated for RBI.
With concerns voiced on the core inflation or the price rise excluding food and fuel, the brokerage said there is no generalisation there, saying "idiosyncratic factors" are pushing up rural healthcare and education costs.
The report said the risks on the inflationary impact of the fiscal policies, especially after the populist moves in the budget, are "overdone", pointing out to the finance ministry asserting to get the fiscal deficit at 3.4 per cent.
The brokerage also said high real rates, which is the difference between the policy rate and inflation, also support for a 0.50 per cent cut in the policy rates.

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First Published: Feb 26 2019 | 7:45 PM IST

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