RBI to Announce Policy Rate Decision Shortly; Here's What Brokerages Expect

The Reserve Bank of India’s monetary policy committee (MPC) will announce its decision on the benchmark policy rate at 11:45am on Wednesday. Most of the brokerages are expecting the central bank’s committee to cut the repo rate by a quarter percentage point to 5.5% in its third bi-monthly policy decision for fiscal 2019-20.

ICICI Securities, in its report, said it expects MPC to cut repo rate by 25 basis points. The brokerage house said that the escalation of

US-China trade war in recent days has led to severe global risk aversion which could weigh on MPC’s decision. Also, headwinds from global development could weaken domestic growth further and open the space for another rate cut, it added.

Its report said: “Domestic growth impulses are also showing poor signs of recovery which could prompt the MPC to cut rates to support

growth by lowering the cost of borrowing. Headline inflation continues to remain benign with any increase in food prices countered by weakening core inflation.”

Another brokerage house Edelweiss also expects a 25 bps reduction in repo rate. It said the entire responsibility of reviving the economy now rests on RBI’s shoulders as the Union Budget 2019 focused only on fiscal consolidation.

State Bank of India (SBI), too, expects RBI to cut repo rate by 25 bps. “We, however, foresee significant volatility in G-Sec yields that could first rise precipitously (even 6.5-6.6% is not ruled out) and then decline precipitously (below 6%), reflecting global headwinds.

Banks will cut deposit rates further and lending rates will witness a faster incremental fall in coming months. This could aid recovery, but it is unlikely before late Q3FY20.”

Meanwhile, Bank of Baroda expects RBI to cut rates by as much as 50 basis points to support growth as inflation remains below its target of 4%. The bank said, “Global manufacturing remained muted in July 2019. As a result, global yields, equities and oil prices fell. US Federal Reserve cut rates by 25 bps, and other central banks like Bank of England, Bank of Japan, European Central Bank and RBI will also ease.”