Raghuram Rajan-led Reserve Bank of India (RBI) is likely to go for a final 25-basis point rate cut in June and will be in pause mode thereafter until end-2016 as the government’s fiscal stance is positive for growth, says a report.
According to Japanese brokerage house Nomura, in 2015-16, the government’s fiscal stance is “mildly expansionary”.
The cyclically-adjusted fiscal balance is likely to worsen to 6.2 per cent of GDP in 2015-16 from an estimated 5.9 per cent in 2014-15.
“Overall, our analysis suggests that the government’s fiscal stance is mildly expansionary in financial year 2016 and positive for growth, which reduces the need for an accommodative monetary policy at the margin, in our view,” Nomura India Chief Economist Sonal Varma said in a note.
On rates, the report said “we expect RBI to deliver a final 25-bp repo rate cut in June, staying on hold thereafter until end-2016 as growth revives and inflation stabilises at around 5.0-5.5 per cent”.
With Wholesale Price Index or WPI-based inflation winding down to a record low of (-)2.33 per cent in March, there is a clamour for a lower rate to revive consumer confidence and boost investment.
In its policy review in April, RBI kept the key policy rate unchanged on fears of unseasonal rains impacting food prices.
The Reserve Bank has slashed repo rate by 0.5 per cent since January. The next review is due in the first week of June.