Analysts see another 25 bps rate cut
As the Monetary Policy Committee of the Reserve Bank of India (RBI) sits down to deliberate on interest rates for three days, beginning Wednesday, it will have its eyes firmly on external factors, which is the biggest risk currently at sight for growth in India. Keeping in view the fact that inflation is under control, most analysts believe the rate-setting panel might cut the repo rate by another 25 bps.
With consumer price index (CPI) based inflation forecast to trail 4% for a large part of this fiscal, monetary easing by the MPC is likely to continue. A 25 bps rate cut is expected this week, followed by two more cuts over the subsequent two policy reviews, taking the repo rate to 5.25% by the end of the cycle. With growth below trend and inflation below target, we believe policy rates will need to move into the accommodative zone rather than neutral, says a report by Nomura.
'As such, we expect an additional 100 bps rate cut to a terminal rate of 5.00%, with 25 bps cuts in each of June, August, October and December,' it says. Nomura underscored the fact its projection for both GDP growth and inflation are lower than the RBI estimates. Nomura predicts India's GDP to grow at 6.2% against RBI's projection of 6.5%, and FY26 inflation to be 3.3% against 4% predicted by the RBI.
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