RBI seen cutting rates by 25bps in the policy meet on Wednesday

The Reserve Bank of India (RBI) will be announcing its monetary policy for the first time since the Union Budget release, and hence the event is considered a significant one from the market viewpoint.

The RBI should cut interest rate by 0.5-0.75% in view of dull credit growth in addition to subdued demand. This shows that for the time being the stock markets have started factoring in the rate cut of at least 25 bps in the upcoming monetary policy meet, as per strong speculations doing the rounds. However, banks are obviously passing on the interest rates forcefully by cutting rates since the start of the year 2017.

Experts thick that the possibility for a minimal rate cut of 25 base point is on the cards this time around, as the conservative fiscal policy introduced in the budget supported with easing inflationary course has opened vistas of opportunity for the central bank to stimulate markets with rate cuts.

Seven out of 10 bank economists hope that the RBI to cut its repo rate by 25 bps to 6% when the central bank’s monetary policy committee meeting on 7 & 8 February for the bimonthly credit policy, while the other 3 economists expect the repo rate to remain unchanged.

Further, RBI is aiming to keep retail inflation under 5% in the quarter-4 and 4% within a band of 2 percentage points on either side in the medium term.