The Reserve Bank of India will release its monetary policy statement on Thursday following a three-day Monetary Policy Committee (MPC) meeting less than a week after the interim Budget. This is the first policy meeting chaired by the new RBI governor Shaktikanta Das. Most analysts expect the central bank to cut the key repo rate by 25 basis points (One basis point is a hundredth of a percentage point). Here is what experts expect in the RBI's monetary policy decision tomorrow:
Two out of five members in the
CNBC-TV18's Citizen MPC Citizen MPC of CNBC-TV18 expect a rate cut while the remaining three expect that the central bank will hold the rates.
The two members that expect a rate cut of 0.25 percent are Sajjid Chinoy, chief India economist of JP Morgan and Pronab Sen, former principal adviser of the Planning Commission. Nomura's Sonal Varma, Citi's Samiran Chakraborty, and SBI's Soumya Kanti Ghosh.
All the members expect the central bank to change their stance to neutral from the current 'calibrated tightening'.
It is likely for the RBI to either opt for a rate cut of 0.25 percent based on the benign inflation or not change the rate at all, said State Bank of India in a
"We now expect RBI to change its stance in February, but it is likely to remain on a pause mode. The first cut might happen in April 2019, but we believe it will be shallow rate cut cycle. However, we will not be surprised if RBI delivers a 25 basis point rate cut on February 7 itself," noted the report.
The report did not specify which stance it expects the central bank to change to.
The brokerage house brings to light the volatile oil prices and the fiscal challenges. However, it completely ruled out the chance of a rate hike and said the chances for the central bank to change its stance to hawkish is very likely.
"Growth has largely bottomed out, but India has yet to benefit from the synchronised pick-up in global demand. In this light, we expect the monetary policy committee to turn hawkish, but not enough for the balance to tip towards a rate hike this week," it said.
The brokerage house said that the falling inflation and the recent trend of the declining global crude oil prices can push the central bank to cut interest rates.
S&P Global Ratings Economist Vishrut Rana said inflation remains under control and near the low end of the target band, following strong food output, and easing crude oil prices, that have fallen about 20 per cent from their October highs.
"These two factors mean that the Reserve Bank of India has some policy space to move its interest rate settings downward at least in the near term,"
Rana told PTI. BofA Merrill Lynch
The research report by the fund house expects the MPC to cut the rates by 25 basis points on Thursday. "It is better to act now than wait till April as the busy season ends in March," it said.
The financial house expects a rate cut and a change in the policy stance to neutral.
"There is a high likelihood of a change in RBI stance from 'calibrated tightening' to 'neutral' with a possible rate cut in the next MPC meeting. Fiscal slippage, however, continues to be a risk for rate cut," a JM Financial report said.
The brokerage expects the rates to be steady but change the stance from 'calibrated tightening' to 'neutral'.
Nomura in a report said RBI Governor Shaktikanta Das has expressed concerns about the stickiness of core inflation, suggesting the MPC would see this budget as an additional need to maintain caution and stay on hold.
"Nevertheless, we believe the MPC will have adequate cause to correct its 'calibrated tightening' stance to 'neutral' at its February policy meeting," it said.
(With inputs from agencies)