Weak demand and low inflation levels have provided more room to the Reserve Bank of India (RBI) to cut the key rate further in the upcoming monetary policy review later this month, says a report.
According to a report by Research firm Dun & Bradstreet, despite the lowering of inflation, optimism levels about recovery in the economy have not rebounded.
“Weak demand along with low inflation has provided more room to the RBI to further cut the policy rate in the upcoming policy meet,” Dun & Bradstreet India Senior Economist Arun Singh said.
RBI, which has lowered the benchmark rate by a combined 75 basis points so far this year in three instalments, is scheduled to hold its next bi-monthly monetary policy meet on September 29.
According to the report, two consecutive years of less than normal monsoon could drag down the growth momentum of the economy. Moreover, fall in rural wages could impact recovery in overall demand going ahead.
D&B expects the WPI inflation to be in the range of (-)4.8 per cent to (-)4.6 per cent during September 2015.
“While the price indicators reflect a substantial moderation, it would be interesting to perceive the inflation dynamics once the favourable base effect wanes and full impact of deficit monsoon is visible (after October 2015),” Singh said.
Factors which currently pose challenges to the growth dynamics are high non-performing and restructured loans, increase in corporate leverage, weak corporate sales, poor export demand and uncertainty over the US Fed rate hike, he added.
India’s GDP growth rate slipped to 7 per cent in the April-June quarter of 2015-16, from 7.5 per cent in the preceding quarter.