Economists expect one more rate cut

The 25 bps cut in repo rate announced by the RBI today was on expected lines for most economists. Many of them, however, expect another cut in the second half of the calendar year.

Madan Sabnavis, Chief Economist, CARE Ratings, expects an additional 25 bps cut in the policy rates in the second half of the calendar year when a clearer picture on the monsoons, agricultural output and GST implementation would have emerged, and, provided the downward trajectory of inflation is sustained.

Radhika Rao, India Economist, DBS Bank, said today’s policy statement is not a game-changer for the markets, with a neutral central bank to keep interest rate differentials in favour of the economy and, thereby, fueling foreign investor interest.

She said, "One needs to differentiate between liquidity management and the rate direction, which might over the course of the coming months move in opposite directions. Whilst rates might be lowered in response to benign inflation, liquidity might continue to be drained to ensure the operating rate target is close to the policy rate."

Ritika Mankar Mukherjee, Economist, Ambit Capital, said she expects the RBI to administer 25-50bps rate cut from hereon over the rest of FY18. She said, "Even as CPI inflation is expected to trend higher in 2HFY18, we expect the RBI to cut rates from hereon mainly because: (1) the Central Government’s net spends have been heavily front-loaded and, hence, will slow down from hereon, thereby, requiring monetary policy to play a more growth-supportive role and (2) meaningful pressure is being exerted by the Ministry of Finance on the RBI to cut rates."

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