RBI may stand pat for now, cut rates in October-December: report
The industry is still hopeful of further rate reduction from the central bank to boost investment.
New Delhi: Reserve Bank is likely to stay away from any repo rate cut in its August policy review meet but may ease key rates by 25 basis points in October-December quarter, says a report.
According to Kotak Institutional Equities, CPI inflation is expected to average close to 5 per cent this fiscal.
"Despite near-term seasonal inflation risk, we maintain our call for another 25 bps of rate cut in 4QCY16 but would review further policy call from the new RBI regime," Kotak Institutional Equities said in a research note.
The report noted that the progress of monsoons and favourable base effect in the second half of this fiscal would continue to point towards RBI achieving its near 5 per cent inflation target by end-March 2017.
"Further, the expectation of additional monetary easing by major central banks amid increasing global uncertainty may provide additional policy leeway," it said.
In June policy review meet, RBI Governor Raghuram Rajan had kept interest rates intact, citing rising inflationary pressure, but hinted at a reduction later this year if good monsoon helps ease inflation.
The industry is still hopeful of further rate reduction from the central bank to boost investment. The report "ruled out" a rate action in August, amid higher than seasonal surge in vegetable prices and the pace of monsoons.
Wholesale inflation accelerated for the third straight month in June, hitting 1.62 per cent on costlier food and manufactured items.
The hardening of the WPI index follows an uptick in retail inflation, which hit a 22-month high of 5.77 per cent in June, dampening chances of a rate cut by RBI at its next policy meet scheduled for August 9.