Money & Banking

Expectations of rate cuts rise on weak growth numbers

Mumbai | Updated on March 12, 2018 Published on June 03, 2012

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Amid slowing growth concerns with weak GDP numbers at 5.3 per cent for the fourth quarter, expectations of further rate cuts have risen for the mid-quarter monetary policy on June 18.

“We expect a 75 bps rate cut in this fiscal year though it looks unlikely in June as the RBI will wait for inflation to moderate,” said Mr Rajesh Monga, CFO, YES Bank. Citigroup economist Ms Rohini Malkani expects one more rate easing later this year.

According to Dr Biswa Swarup Misra, Associate Professor, Xavier Institute of Management, Bhubaneswar, “The policy action would be guided by the yet to be released IIP for April 2012 and inflation numbers for May 2012. We are not going to see major improvements in the IIP numbers though they should get some benefit from the base effect.

“As the Q4 GDP growth has been quite low and the RBI has reiterated in recent the past that its focus has shifted to growth, we should expect an easy policy bias,” Dr Misra added.

In May, the RBI lowered interest rates for the first time in three years, but said there was limited scope for further rate cuts, as inflation stayed above seven per cent. However, the recent fall in core inflation has provided some relief to the central bank.

Dr Misra added, “A 25 bps rate cut will help step up the tempo in the nascent recovery of investment seen in Q4. This will also be one more chance for the RBI to infuse some optimism in the economy in wake of the impending developments following the Greek elections.”

Mr T.S. Srinivasan, General Manager, Treasury head of Indian Overseas Bank also shared similar views on probable rate cut in the mid-quarter policy.

“A 50 bps cut or at least 25 bps cut in both CRR and policy rates are very likely. If oil prices continue their downward spiral a stronger dose cannot be ruled out,” said Mr Anand Bagri, Head of domestic markets, Ratnakar Bank.

Though headline inflation would hover around 7 per cent, we may see some moderation in the manufacturing inflation from the base effect as well as sharp slowdown in growth. “Possibly after inflation moderates, we expect a 100 bps rate cut in the fiscal year,” Mr Bagri said.

beena.parmar@thehindu.co.in

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Published on June 03, 2012
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