MUMBAI, Aug 8: After an unconventional 35 basis
points reduction in the repo rate, the Reserve Bank is likely
to go in for another 25 basis points rate reduction in the
December quarter amid growing concerns over growth, says a
report.
In the third bi-monthly monetary policy review, the
central bank cut the repo rate for the fourth time in a row to
5.40 percent– a nine-year low, and retained neutral stance
going forward.
The central bank also revised downwards the projection
of GDP growth to 6.9 percent for FY20 from 7 percent in its
June estimate.
“We now see a high probability of another cut by 25
basis points rate cu in Q4 of 2019,” Goldman Sachs said in a
research report Thursday.
The RBI also said the CPI inflation is projected at
3.1 percent for second quarter of FY20 and 3.5-3.7 per cent
for the second half.
Beyond the fourth quarter of 2019, the report does not
see space for further cuts primarily as headline inflation is
likely to pick up and cross the 4 percent target by the end of
the year, and output gaps are also estimated to close.
It further said the RBI has been increasingly
responsive to global and domestic growth concerns.
“In light of growing global trade policy risks, and
the possibility of a no-deal Brexit, risks are likely skewed
towards further reduction in the rates,” the report said.
Markets still think there would be space for another
50 bps reduction in the policy rates over the next two years,
it added. (PTI)
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