With the US central bank (Federal Reserve) keeping status quo on interest rates, at least two major banks expect the Indian central bank (Reserve Bank of India, RBI) to cut interest rate by 25 basis points (bps) in its policy review meeting on September 29 (next Tuesday).
“I believe the RBI would reduce rate in the coming monetary policy. The expectation is a 25-basis-point cut. Whether it is enough is debatable,” said Rajnish Kumar, managing director (compliance and risk) at the State Bank of India, on the sidelines of a banking seminar organised by the Confederation of Indian Industry (CII) in Kolkata on Friday.
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YES Bank expects a rate cut in the RBI policy.
“A further rate cut will depend on inflationary pressure, especially if there is a further correction in commodity prices and an improvement in the supply side,” said Shubhada Rao, senior president and chief economist, YES Bank. Rao expects the US central bank to raise interest rates in December.
Despite a poor monsoon, YES Bank expects the retail inflation to cool due to good supply management policies of the government. In August, the consumer price index rose to 3.66 per cent, compared to 3.69 per cent in July.
“Against the six per cent projection of the retail inflation in January 2016 by the RBI, we expect it to be 50 basis points lower at 5.5 per cent. We have seen two consecutive bad monsoons, but still the food inflation is subdued. The government has been releasing food stocks, especially cereals. If it continues the policies, we expect the inflation on the lower side than the RBI projection,” said Rao.
She added the government’s policies should translate into better growth by the end of this financial year.
The bank expects the economy to grow 7.8 per cent in FY16.