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Expect 3 RBI repo rate cuts in a row, says BofA Securities' Indranil Sen Gupta

Updated : March 17, 2020 12:03 PM IST

The Reserve Bank of India (RBI) in its press conference on Monday did not announce a rate cut, but it unleashed a host of liquidity measures. Indranil Sen Gupta, India economist for Bank of America Securities, in an interview with CNBC-TV18 shared his views on the RBI’s measures and the likely impact of coronavirus on economic growth in the country.

On his growth estimates, Gupta said: “We have cut our growth to 4.7 percent for this year and 5.1 percent for FY21. Clearly, there are many moving parts but it is fairly clear that growth is going to remain weak for some time.”

On crude oil prices, he said, “We think that oil will stabilise around $45 per barrel. This should bring down the current account deficit to 0.7 percent of the GDP - that is the good news.

“The not so good news is that it will also probably lead to lower FPI (foreign portfolio investment) flows because it is essentially the very risk that is bringing down oil prices which will also lead to lower FPI flows. Nonetheless the government is going to get additional revenue we hope that the government will use the money it gets from oil tax to support consumption.”

On expectations of RBI repo rate cuts, Gupta said: “We expect 75 basis points of rate cuts. One is before or on April 3, with the Fed having cut 150 basis points already. The second is in June, so we think that inflation will come down to the RBI’s 2-6 percent inflation mandate by March and therefore the RBI MPC should have the comfort to cut in June as well given the first March quarter growth is probably going to be around 4 percent.

“We then see another cut in October before the one set of the busy season. Expect three cuts in a row.”

On credit offtake, he said, “We think credit offtake should begin to improve somewhere from the middle of the year. There are some base effects which are pulling down credit growth now and they will begin to ease somewhere in the middle of the year.”
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