Citigroup India, in its FY08 macro forecasts, has factored in a rate cut as well as a hike in banks? cash reserve ratio. The timing, however, is uncertain as the Reserve Bank of India (RBI) may wish to see the impact of the market regulator Securities and Exchange Board of India?s final report on the rules for overseas investors? investments in derivative instruments like participatory notes.
The backdrop of RBI?s Monetary Policy due on October 30 is a relatively benign macro-environment, with managing dollar inflows remaining the key concern for policy officials, said Rohini Malkani, economist, Citigroup, India.
In any case, the RBI has the flexibility and has been effecting inter-policy measures.
Citi believes that interest rates should be brought down as investment growth is twice that of consumption, thereby resulting in capacity constraints getting slowly but steadily addressed.
Also credit growth and inflation at 20.9% and 3.07% are below the RBI?s target of 24-24.5% and 5%.