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RBI likely to cut rates in Dec 6 policy review: Report


New Delhi, October 30: As retail inflation remains muted and the October number is expected to be about 3.3 per cent, the Reserve Bank of India is likely to cut rates at its December 6 policy review meet.

 Reserve Bank of India. PTI file photo

"We continue to expect the RBI MPC to cut policy rates by 25 bps on December 6, though the October MPC minutes sounded more hawkish than the actual policy," Bank of America Merrill Lynch (BofAML) said in a research note.

The core Consumer Price Index (CPI) based inflation, adjusted for house rent allowance is moderating, and the HRA impact (post 7th Pay Commission), is largely "statistical", it said.

"We expect October CPI inflation to remain unchanged at 3.3 per cent as in September," the global brokerage noted. The report further noted that "soft growth" numbers call for lower rates.

At 5.5 per cent in old GDP series, even factoring in demonetisation shock-led base effects in December and March, India's GDP growth in this fiscal is expected to be well below our estimated 7 per cent potential.

Moreover, a December policy rate cut will signal lending rate cut before the 'busy' season. "...a December 6 cut will still signal a lending rate cut to banks before the 'busy' industrial season intensifies in the March quarter, especially as the government is set to recapitalise banks to revive loan supply," the report noted.

It also raised its inflation forecast to a range of 4.2 to 4.6 per cent during remainder of current fiscal as against 4 to 4.5 per cent previously.

Earlier this month, RBI kept benchmark interest rate unchanged fearing rising inflation while lowering growth forecast to 6.7 per cent for the current fiscal.


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