Monetary policy: 4 reasons why RBI may go for a rate cut today

By: | Updated: September 29, 2015 5:34 PM

Most of market experts are predicting a 25 basis point cut this time in the benchmark repo rate as RBI announces it monetary policy review today. SLR and CRR are expected to remain unchanged.

RBI monetary policy reviewReserve Bank of India monetary policy review: The announcement about the benchmark repo rate, SLR and CRR will be made public at 11 am. (Photo: PTI)

The Reserve Bank of India (RBI) will release its fourth bi-monthly monetary policy statement on Tuesday. The announcement about the benchmark repo rate, SLR and CRR will be made public at 11 am.

According to Bloomberg Survey of 49 analysts, 41 expect a repo rate cut and 8 expect no change in the RBI’s stance on the interest rate. Most of market experts are predicting a 25 basis point cut this time in the benchmark repo rate. SLR and CRR are expected to remain unchanged.

Here is Sunil Jain, Managing Editor of The Financial Express’ take on RBI rate cut:

Here are four reasons given why RBI may go for a rate cut this time.

1) July and August CPI prints (post RBI’s last policy review) have been sub 4 per cent and lower than RBI’s indicative trajectory. Disinflationary trend in the economy remains broad based with food inflation and core inflation slowing considerably in the last 2 months.

2) US Fed rate hike has been delayed and the commentary was fairly dovish. This eliminates near-term uncertainty and, therefore, should provide RBI room to take policy action looking at domestic conditions.

3) With global growth concerns rising and India’s growth recovery still remaining fragile, the growth inflation dynamics in the economy warrant a more accommodative monetary stance.

4) Renewed transmission of lower rates by large banks has started. HDFC Bank did a 35-basis point cut in its base rate to 9.35 per cent from 9.7 per cent (taking a cumulative base rate cut of 65 basis points from January 2015), the lowest in industry. This is in comparison to 75 basis point cut in repo rates from RBI in the same time frame. Other large PSU Banks and private Banks have their base rates 25 to 30 basis points higher than that of HDFC Bank and this gap is expected to narrow down further.

With inputs from Edelweiss

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