The Reserve Bank of India may consider cutting key policy rate by 25 basis points, said Indranil Sen Gupta, India Economist at Bank of America Merrill Lynch.
"The house is expecting a 25 basis points rate cut in February or April," said Sen Gupta, adding "inflation will stay benign for few coming months. Growth too is slowing because of liquidity crunch and global growth too is slowing".
One basis point is a hundredth of a percentage point.
The government on Tuesday appointed former finance secretary Shaktikanta Das as the new governor of the Reserve Bank of India (RBI) after Urjit Patel resigned abruptly on Monday.
According to Sen, the first priority of the new RBI Governor is to defuse the liquidity crunch. "So we expect the RBI to step up open market operations (OMOs) to Rs 50,000 crore a month in March quarter."
One could also see some relaxations be it in the PCA framework, said Sen Gupta.
When asked if the government would do more populous measures and shift towards the agrarian crisis post the state election outcome, he said as we go towards general elections, there will be a step-up in farm loan waivers, which could swell up to $40 billion by May from the $25 billion currently.
The fiscal deficit is expected to overshoot to 3.7 percent of GDP in FY19 but this deficit will be made up by drawing down the centre’s surplus with the RBI, he said.