RBI may go for 25 bps rate cut on Wednesday

Singapore, Aug 5: The Reserve Bank of India is expected to cut key policy rates by 25 basis points on Wednesday taking the benchmark repo rate to 5.50 per cent, says a DBS report. According to DBS, monetary policy easing will have to continue with a sub-target inflation on hand.

Moreover, soft numbers (auto, cement sales, production, PMIs, construction sector) underscores weak economic activity.

"Consensus expects the Reserve Bank of India to lower its repo rate by 25 bps to 5.50 per cent at its monetary policy meeting on August 7," DBS said in a research report. The Monetary Policy Committee (MPC) will meet during August 5 to 7, 2019 for the Third Bi-monthly Monetary Policy Statement for 2019-20.

In its June policy review, while reducing the rate for the third time in a row, the RBI had signalled more easing as it looked to support an economy growing at the slowest pace since the BJP first came to power in 2014.

India's economic growth rate slowed to a five-year low of 5.8 per cent in the January-March quarter of 2018-19, due to poor performance in the agriculture and manufacturing sectors. As per the Central Statistics Office (CSO), GDP growth during 2018-19 fiscal stood at 6.8 per cent, lower than 7.2 per cent in the previous financial year.

According to DBS, RBI Governor's recent comments that policy stance will depend on incoming data, nudged traders to pare easing expectations. RBI Governor Shaktikanta Das had said that three rate cuts in 2019 accompanied by a change in policy stance could be cumulatively considered as a 100 bps worth reduction in the policy rate, with transmission of these cuts likely to be the next priority.

PTI