MPC minutes strengthen case for a rate cut: Analysts

New Delhi: Minutes of the RBI meeting in June reveal more flexibility among MPC members and the central bank might deliver a 25 bps rate cut in its August review, said analysts.

According to global financial services major HSBC, the minutes of the MPC meeting held earlier in June show that the members are more flexible in their outlook and ready to be convinced by lower inflation prints over the next few months.

The global brokerage said inflation expectations have fallen into a virtuous cycle and are likely to stay there, comfortably anchoring inflation rate at the 4 per cent target "unless some other factors turn sour enough to yank them out".

"We now expect the RBI to deliver a 25 bps rate cut in its August meeting (versus our previous expectation of a prolonged pause)," HSBC said in a research note.

Meanwhile, Nomura in a research note said the August decision "appears to be a close call". According to Nomura, there is 40 per cent probability to a 25 bps rate cut in August.

The upcoming factors that are likely to affect August policy decision include industrial output growth, CPI inflation and distribution of July rains, Nomura said, adding that lower oil prices, if sustained, would increase the MPC's confidence around benign inflation.

Kotak Institutional Equities also noted that the MPC minutes strengthen the case for a rate cut. The domestic brokerage firm said May inflation, which surprised on the downside, is likely to be followed by a sub-2 per cent print in June and July. "Backed by the overall softer tone in the recent policy and the minutes, in conjunction with a possible sub-2 per cent June and July inflation prints, we maintain our call for a 25 bps cut in the August meeting," the report said.

Earlier this month, the RBI left the key repo rate unchanged at 6.25 per cent as it wanted to be more sure that inflation will stay subdued. The finance ministry's stand is inflation has been consistently low warranting a rate reduction.