The Reserve Bank of India is likely to cut interest rates one more time in June before rising inflation pressures and elevated fiscal deficits leave little room for further accommodation for the rest of the year, IHS Markit said on Wednesday.
The RBI had cut interest rate by 25 basis points each in February and April to boost economic growth.
In a report on the forecast for global monetary policy action and resulting economic impact, the London-based global information provider said the central bank is likely to tighten its monetary policy stance in early-to-mid 2020. “With both domestic and global growth slowing and inflation in India remaining below the RBI’s inflation target, it is now increasingly likely the RBI will proceed with another rate cut in June.
“Beyond June, intensifying inflation pressures and elevated fiscal deficits will leave little room for further accommodation, and we expect no additional rate cuts in 2019 with the monetary policy likely to switch to tightening in early-to-mid-2020,” it said.
Support to growth
Monetary policy easing, coupled with the relaxation of lending rules and greater election-driven fiscal spending in the first quarter of 2019, will provide some support to growth during the first half of fiscal 2019-20, it said.
The report noted that food and fuel prices should accelerate in the coming months, particularly in the event of a sub-normal monsoon.
Headline inflation will cross the 5 per cent mark by the second half of 2019 and average 4.2 per cent in 2019 and 5.3 per cent in 2020.
IHS said globally monetary tightening cycle seems to be over for now. The acceleration in global growth that occurred in 2017 led some key central banks to begin a steady – albeit slow – tightening of monetary policy.