Banks, economists expect rate cut by Indian central bank

Source: Xinhua | 2019-08-07

Most Indian banks and brokerage houses are expecting at least 25-basis points (bps) cut in policy rates on Wednesday as the country is in the midst of a subdued economy slowing investments and flat growth in exports.
"In our view, the RBI (Reserve Bank of India) should ideally front-load a 50-bps rate cut at its forthcoming meeting on August 7, but the RBI governor's recent interview suggests a more measured approach. Hence, a 25-bps rate cut looks more probable," said Kapil Gupta, chief economist with Edelweiss Securities, a domestic stock brokerage house.
The country's central bank - Reserve Bank of India's Monetary Policy Committee (MPC), will share the outcome of the three-day meeting on Wednesday.
Bank of America Merrill Lynch expects rate cut by 35 bps. In a report ahead of the policy meeting outcome, it said that with liquidity crunch still hurting growth, a baby step of 25 bps would be too little while 50 bps may seem too much with inflation set to up in end-2019 on base effects.
However, Anushri Bansal, analyst at ICICI Bank, the second largest Indian bank in terms of assets and market capitalization, believed that inflation worries will take back-stage as any increase in food prices would be countered by moderating core inflation.
"In our view, these factors will lead the MPC to vote unanimously for a 25-bps rate cut, while signaling for further easing," Bansal said.
Experts are also looking at the guidance beyond the rate cut as it holds key to quick transmission to address liquidity concerns.
So far this calendar year, the central bank has cut rates by 75 bps, but weighted average lending rates to borrowers has dropped or transmitted by only 21 bps by the commercial banks.
Indian benchmark equity indices ended 0.75 percent up on Tuesday over its previous close in anticipation of the rate cut after being on consistent decline over the past few weeks on global trade concerns.
"Given the comforting inflation data and declining growth, expectations are rife for a fourth consecutive rate cut of 25 bps by RBI. However, the commentary on growth and inflation would be more important factor in deciding the course of the markets," said Ajit Mishra, VP-Research, Religare Broking Ltd, a domestic stock brokerage house.