RBI may cut repo rate by 25 bps: Analysts


MUMBAI, May 31: With economic growth likely to

slow down in the March quarter 2019, the RBI may cut repo rate by 25 basis points in the upcoming monetary policy review, analysts say.

The growth data for the fourth quarter 2018-19 is to be

released Friday.

According to a DBS Group Research report, the economic growth is likely to moderate to 6.1 per cent, slowest in over seven quarters, from 6.6 per cent last year same period.

The gross value-added growth is likely to ease to 6 per

cent from 6.3 per cent in the previous quarter, it said.

The Reserve Bank will announce its second bi-monthly monetary policy for the current fiscal on June 6. This will be the first policy meet of the central bank after the Lok Sabha elections 2019.

“Close on the heels of the GDP outcome, the RBI policy

committee will decide on rates on June 6. We look for a

25 basis points cut in the repo rate to 5.75 per cent, taking

cumulative cuts in 2019 to 75 basis points,” the DBS Research report said.

In 2019, the RBI cut repo rate by 25 basis points

each in its February and April monetary policy reviews.

Earlier this week, SBI’s economic research department

in its report Ecowrap said it expects GDP growth for March quarter at 6.1 per cent and GVA growth at 6 per cent or slip

marginally below 6 per cent at 5.9 per cent.

It sees 2018-19 GDP growth at 6.9 per cent.

The report said due to the expected slowdown it

expects larger rate cut of 35-50 basis points by the RBI in

the forthcoming policy.

“RBI could use the rate change in non multiples of 25

basis points in June policy as a first step towards providing second generation signals to market of future policy stance,”

Ecowrap report said.

Kotak Mahindra Bank’s president (consumer banking),

Shanti Ekambaram said with the elections resulting in a

decisive mandate, the attention will now shift to policy –

both fiscal and monetary – with the key aim of spurring

growth, boosting the slowing consumption and attracting

private investment.

“One can expect both liquidity measures and a rate

cut. Rate cut expectation ranges from 25-50 bps,”

Ekambaram said.

She said the RBI will see how the fiscal situation unfolds

with the budget announcement and spending measures.

It will also take into account global factors, trade

tensions, crude price trends, geopolitical equations and the

monsoon outlook, she added.

Rating agency Icra however expects the monetary policy committee (MPC) to maintain a status quo on June 6 as it would adopt a wait and watch approach and look for the fiscal policies announcement during the Union Budget in July 2019.

MPC has already done consecutive rate cuts in its

previous policy meetings and the benefit of those cuts by way

of lower lending rates or improved credit growth are yet to

become visible, it added.

The agency said spurring up the domestic consumption

will remain an area of focus, and it expects RBI to address by

statements on improving the liquidity conditions.

“Such measures can improve the transmission of

previous policy cuts in lending rates of banks, rather than

another cut in repo rate, which may not necessarily result in

lower lending rates of banks and demand growth,” the rating

agency said. (PTI)