RBI projected to slash interest rate in 25-50% range

The Dollar Business Bureau

The Reserve Bank of India (RBI) is expected to slash key interest rates by 0.25% in the backdrop of a subdued inflation, which is projected to remain at a lower side at 4.75% in the quarter ending March 2017, several Indian and global financial institutions have forecasted.

The RBI is scheduled to hold its policy review meet on April 5, in which the Indian banking body will make its key announcements. In addition to the cut in repo rate to be made next week, the RBI will cut the rate again in September, after assessing the impact of monsoon on domestic food prices.  

RBI Governor Raghuram Rajan, in one of his policy-easing announcements in September last year, had reduced the repo rate by a cumulative 125 basis points to 6.75%. He, however, left the repo rate unchanged in the final bi-monthly monetary policy review in February 2015-16. Rajan had said he would wait until the Union Budget 2016-17, in order to understand the long-term impact of the government’s announcements towards the country’s fiscal stance and structural reforms.

The institutions, based on their surveys and investors’ stance on the government policies, however, pointed out a possibility that the rate cut could be in the range of 25-50%

Inflation went down to 5.18% in February from January’s 5.69%, thereby breaking a five-month long streak of increases and also leaving enough room for the RBI to consider easing the rates.

Monsoon, which, more often than not, has a direct impact on RBI’s rate-cuts decisions, has been less than normal for the last two years. This year, the pre-monsoon showers already arrived in various parts of India on Friday; and with several projections of a favourable monsoon this year, the RBI governor will have plenty of scope to consider the rate cuts.