INSUBCONTINENT EXCLUSIVE:
the RBI may go for a 35 basis points cut in benchmark policy rates at its bi-monthly Monetary Policy Committee's rate review meeting
One basis point is equivalent to 0.01 per cent or 1/100th of a per cent.The MPC, headed by RBI Governor Shaktikanta Das, had started meeting
for three days beginning June 3 to firm up the second bi-monthly monetary policy of the fiscal year
The RBI rate cut hopes pushed the Sensex to a new high above 40,000 points."Market has hit a new all-time high on expectations that the
Reserve Bank of India, in the forthcoming monetary policy on June 6, might cut rates by 50 basis points," Naveen Kulkarni, head, research at
Reliance Securities, said.The RBI has already cut rates twice, by 25 bps each time, during the year to support growth, and raise demand with
inflation at a moderate level
India's economy grew slower to a 18-quarter low in the January-March quarter at 5.8 per cent, pulling down the annual growth to a
five-year low in FY19 to 6.8 per cent.Taking a cue from this, the central bank is widely expected to cut interest rates further from 6 per
cent to reinvigorate the flagging economy but sources said this could be as high as 35 basis points, looking at the slackeness in the
economy.Bank of America-Merrill Lynch says that the RBI will lower its benchmark interest rate by an unconventional 35 basis points."Fading
fiscal/rupee risks, after PM (Narendra) Modi's re-election, should allow a cut greater than 25 basis points, in line with Governor Das'
out-of-the-box proposal," BofAMerrill Lynch Global Research said in a note.Dalal Street sources said that it is not just the slowing
economy, but Governor Das is also a radical thinker and earlier this year, he, at a global forum, had announced his intention to break away
from the tradition of 25 bps cuts and try out other permutations.Mr Das's comments in Washington in April that central banks could be more
flexible in the size of rate adjustments, rather than sticking to the usual moves of 25 basis points at a time is more applicable today
looking at the grim economic situation, said the sources.Dalal Street also called for a change in policy to "accommodative" from
"neutral"."While growth is likely to recover modestly in FY20, it is still likely to remain below long-term average
Hence, a slack in growth is likely to strengthen the case for a further rate cut," ICICI Securities said in a June 3 note.Finance Secretary
Subhash Chandra Garg recently said there has been reduction in policy rate in the last two policies announced since February.It is for the
MPC to take a view on the policy rate taking into consideration low inflation and moderation in the economic growth
Inflation continues to be much lower than the target, he said, adding core inflation is also now on a decline.Core inflation, along with
headline inflation, have eased substantially, falling in April to 4.5 per cent, its lowest in 18 months
This allows the central bank the much-needed leeway to cut rates in a higher order looking at the slump in growth.Some market experts said
it cannot be 50 basis points as a few have projected
"We do expect a rate cut from the RBI in June 6 monetary policy with either a 25 bps cut or a non-traditional 35 bps cut as indicated by RBI
Governor Shaktikanta Das at the IMF meeting in April," an expert said.
