With retail inflation receding to record low levels and industrial activity staying weak, the Reserve Bank is expected to cut its benchmark lending rate - repo rate - by at least 0.25 percent in its third bi-monthly monetary policy review on Wednesday.
A Reserve Bank of India (RBI) logo is seen at the entrance gate of tts headquarters in Mumbai, India June 7, 2017. REUTERS/Shailesh Andrade
In a Reuters poll, 40 of the 56 economists polled predicted a repo rate cut by 25 basis points to 6 percent, the lowest since November 2010.
Encouraged by significant price improvement, bankers expect the central bank, which has kept rates on hold at 6.25 percent for the fourth straight time citing risk to inflation, to change its monetary stance and may even go for an aggressive rate cut.
"The expectation is of rate cut of a minimum 25 basis points as inflation has eased and also as industrial growth continues to remain weak. A rate cut will give a push to credit growth which has been sluggish from last many quarters," Bank of Maharashtra Managing Director R P Marathe said.
Kunal Kumar Kundu of Societe Generale also echoed similar views. "The recent sharp decline in inflation has clearly caught the RBI by surprise. Clearly, the stage is set for another rate cut," Kundu said in a note according to Reuters.
"Normal monsoon, falling crude prices, weak capacity utilisation and a strong currency all suggest that India's headline inflation does not face much tailwind."
Indian Bank Managing Director Kishor Kharat said there is an expectation that there could be 0.25 per cent rate cut by RBI this time.
The RBI may not touch Cash Reserve Ratio or Statutory Liquidity Ratio as there is adequate liquidity in the market, Kharat added.
The six-member monetary policy committee (MPC) of the RBI headed by RBI Governor Urjit Patel will announce the outcome by 2:30 pm today.
RBI's repo rate at present stands at 6.25 percent, reverse repo rate at 6 percent and marginal standing facility rate at 6.5 percent. Its cash reserve ratio or CRR for banks stands at 4 percent and statutory liquidity ratio at 20 percent.
CRR is the proportion of deposits banks need to keep with the RBI and SLR the proportion of deposits they should invest in government securities.
With inputs from PTI
Updated Date: Aug 02, 2017 15:31 PM