RBI may cut rates by 0.25% in policy review: Care Ratings

The Reserve Bank of Inida now targets CPI inflation and not WPI…

Icra explained that if a reduction in a bank's deposit rate matches the repo rate cut by RBI, and the term deposits constitute only 60 per cent of the funding base, the transmission will only be 60 per cent of the rate cut. (PTI)

The Reserve Bank of India (RBI) may cut interest rates by 0.25 percentage point as inflation is firmly under the desirable limit, credit rating agency Care Ratings said here on Thursday.

With inflation being firmly under the desirable limits, there is a strong case now for the RBI to lower rates on or before June 2. The RBI now targets CPI inflation and not WPI as per its stated stance, it said.

WPI inflation for the first month of the year came in at a new low of -2.65 per cent which was slightly lower than CARE’s forecast of -2.5 per cent. This corroborates with the lower CPI number for April which was 4.9 per cent, it said.

“We expect a rate cut of 25 bps even though there are upside risks in the form of sub normal monsoon, possible increase in crude prices, higher US interest rates and weaker rupee,” Care Ratings said in its report on Thursday.

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First published on: 15-05-2015 at 09:22 IST