RBI unlikely to cut rates on Dec 18, CRR cut possible: Report
It said RBI will go for a 0.25 per cent cut in the cash reserve ration (CRR), which is the portion of bank deposits parked with the central bank, on its December 18 policy review to support growth and will resume cutting rates only from January once inflation peaks off.
"We expect the RBI to resume cutting rates only from January - 75 basis points (0.75 per cent) till July - once inflation peaks off," the report said, adding that "RBI rate cuts will not transmit into lending rate cuts unless the liquidity situation improves."
Over the past three months, the Reserve Bank has reduced the cash reserve ratio, the portion of deposits banks are required to keep with RBI, by 0.50 per cent to 8 per cent. But these cuts did not lead to an easing of overnight rates.
Though, RBI has finally decided to resume open market operations (OMOs) to ease liquidity, BofA ML said that "Governor Subbarao may not want to take chances with the RBI's inflation fighting image by cutting rates at 7.5 per cent inflation."
India is the only BRIC where lending rates are almost at their 2008 peak, the report said.
India had been growing around 8-9 per cent before the global financial meltdown in 2008. The growth
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