DELHI: The Reserved Bank of India (RBI) is expected to cut lending rates 1.25 percent further in its monetary policy review meeting as India’s key currency administrators and macroeconomic managers seek to jump-start Asia’s third-largest economy.
In a surprise move, the central bank reduced the repo rate, or key lending rate, by 0.25 percentage points on January 15, and industry groups have been rachetting up their demand for a repeat action.
The repo rate, the rate at which RBI lends to banks, now stands at 7.75%. A lower repo brings down banks’ borrowing costs, which in turn, prompts them to slash interest rates for final home, auto and corporate borrowers.
“We believe this is a beginning of a big rate cut cycle. We expect a further 1.25 percentage point cut over the next 12 months. We expect a further rate cut of 0.25 percentage point in the next monetary policy review on February 3,” investment banking major Morgan Stanley said in a report.
Data released last month showed that retail inflation grew 5% in December from the previous month’s 4.4% reversing a five-month downward trend, but still 1 percentage point lower than RBI’s threshold level of 6%.
India’s wholesale inflation rate crept up to 0.11% in December from 0% in November, but business leaders said the marginal rise should not deter the central bank to lower borrowing rates to aid an economic revival.
Analysts and economists will also be eyeing forward-looking cues in the accompanying policy statement — RBI’s prognosis about the broader economy’s health, and it’s views about external and internal risk factors.
