After Modi govt’s landslide win, RBI may see 35 bps rate cut in June; here’s how much to expect in 2019

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Published: May 24, 2019 1:46:13 PM

After Prime Minister Narendra Modi-led NDA received a massive mandate, the RBI is expected to cut lending rates by 100 basis points (bps) in 2019, said a global brokerage.

In April, the central bank cut the rate by 25 bps as concern over growth loomed larger than those surrounding inflation.

After Prime Minister Narendra Modi-led NDA received a massive mandate, the RBI is expected to cut lending rates by 100 basis points (bps) in 2019, said a global brokerage. With inflation remaining low at 3.3 per cent in May, the central bank may reduce interest rates by 35 bps in the upcoming June bi-monthly monetary policy to support recovery, pull down yields and provide room for further rate cuts this year, BofAML said in a report. In April, the central bank cut the rate by 25 bps as concern over growth loomed larger than those surrounding inflation. One basis point is a hundredth of a percentage point.

Besides, the RBI is expected to infuse $2-3 billion liquidity per month to improve money market’s liquidity scenario, it added. Along with this, the finance ministry should also recapitalise the public sector banks (PSBs) with surplus RBI capital as released by the Jalan report, the report also noted. A panel led by the former RBI governor Bimal Jain has been created to find out appropriate capital reserve level that the central bank should maintain. The panel would submit the report by June.

Also read: Modi 2.0: Time to take hard decisions quickly; these two Ls are topmost priorities for next govt

The global brokerage also said that the upcoming budget may target the 3.4 per cent of GDP fiscal deficit set up in the interim budget earlier this year by finance minister Piyush Goyal. It also pointed that the fiscal deficit cuts have not led to any lending rate cuts.

Even though the stock markets touched the record high level on Thursday, with the Sensex hitting 40,000 and the Nifty crossing 12,000-mark, the markets may shift the focus from the poll outcome to macro issues, the report also said.

 

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