Despite hawkish stance, expect 75 basis points more cut by RBI over FY16: UBS

Mumbai(PTI): The Reserve Bank is likely to further cut the key lending rate by 75 basis points in the current fiscal despite its hawkish stance, although it may hold the pause button in the next monetary policy review, a UBS report said.

The global financial services major said RBI has to bring down inflation expectations and it is still too early in the rate easing cycle for it to turn dovish.

In the policy review meet on June 2, RBI cut interest rate by 0.25% for the third time this year (first in the financial to spurinvestment and growth but hinted there may not be any more cuts in the near-term.

It cut the repo rate (short-term lending rate) from 7.5% to 7.25, but left all other policy tools like cash reserve requirement unchanged at 4 per cent and Statutory Liquidity Ratio (SLR) at 21.5%.

“This commentary tone suggests a potential pause in policy rate cut cycle at the next policy meeting, but that would still be consistent with our projection of another 75bps in FY16,” UBS analyst Gautam Chhaochharia said in a report.

RBI cautioned about upside risks to inflation and revised its forecast for January 2016 to 6% (from 5.8%) – the upper end of its target range.

“Inflation is not structural in India and the strong disinflation process underway in India will keep showing up in positive surprises in terms of inflation data prints ahead,” the report said.

Inflation still remains a worry for the central bank as it expects price rise to remain subdued till August before rising to 6% by January 2016.

Posted by on June 5, 2015. Filed under Editorial. You can follow any responses to this entry through the RSS 2.0. Both comments and pings are currently closed.