Economists expect RBI to cut 50-75 bps before April

By: and |
March 14, 2020 8:32 AM

Amid fears around the growth slowdown being intensified by the spread of Covid-19 and inflation easing in February, the markets are expecting a repo rate cut anytime now.

RBI, RBI rate cut, scheduled policy review, RBI MPC, MSME, Barclays, GDP expansion, global growthOver the last weeks, the US Federal Reserve and the Bank of England, among others, have slashed rates by 50 basis points (bps).

Amid fears around the growth slowdown being intensified by the spread of Covid-19 and inflation easing in February, the markets are expecting a repo rate cut anytime now. Similar actions by a number of central banks around the world, that are widely being seen as acting in concert, have also fuelled expectations in India.

Economists and money-market watchers — some of whom were till last week expecting the Reserve Bank of India (RBI) to act on the liquidity front — now anticipate action on rates as well. “The cuts by central banks across the world clearly seem part of a coordinated effort. Now that we have seen a fall in the CPI (consumer price inflation) data for February, the MPC (monetary policy committee) could hook on to that and go for a cut. And, it could come anytime now,” said a senior economist with a foreign bank. CPI inflation eased to 6.58% in February from 7.59% in January, largely due to lower food prices.

Over the last couple of weeks, the US Federal Reserve and the Bank of England, among others, have slashed rates by 50 basis points (bps). On Friday, the Chinese central bank lowered the reserve requirement for some local banks to bring down the cost of money. Ananth Narayan, professor-finance at SPJIMR, said there is a possibility that the RBI would go for a deep rate cut before the scheduled MPC meeting on April 3.

“The RBI would need to call for an ad-hoc meeting of the MPC, which the governor could well do. Further, an FOMC meeting is slotted on March 18 and US rates are seen as heading to 0% soon. That would only give further licence to the RBI and the MPC to deliver a deep and immediate rate cut,” he said.

Upasna Bhardwaj, economist, Kotak Mahindra Bank, said, “With domestic and global growth expected to face downside risks from the spread of COVID-19 and deflationary forces emerging we see room for up to 50bps of rate cut by the MPC, with any further easing contingent on the evolving growth environment.”

Analysts pointed out that there is limited scope for fiscal action, and therefore, monetary policy will have to step in to support growth. Tanvee Gupta Jain, economist, UBS Securities India, said: “We now expect the MPC to ease the repo rate by a further 75 bps over the next 12 months (vs 25 bps earlier), with the first cut likely in the April meeting. That said, if the number of domestic COVID-19 reported cases rise significantly over the next couple of weeks, we would not rule out an intra-meeting cut in March.”

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