INSUBCONTINENT EXCLUSIVE:
(RBI) is expected to cut benchmark interest rates for the fifth time this year on Friday as recent fiscal measures to boost ailing growth
seem largely inadequate and benign inflation offers room for more easing.The RBI is predicted to lower its key lending rate or the repo rate
by 25 basis points (bps) to 5.15 per cent, which would take cumulative cuts so far this year to 135 bps.Most analysts forecast one more cut
of 15 bps in December.Some RBI watchers expect a larger cut this week, after it cut the repo rate but an unconventional 35 bps in
August."With current inflation remaining benign, we expect RBI to opt for a 40 bps rate cut at its policy review later this week in a bid to
continue its support towards growth revival," said Yuvika Oberoi, an economist with Yes Bank in Mumbai.Asia's third-largest economy
expanded just 5 per cent in the June quarter - its slowest pace since 2013
That has raised expectations the RBI will be forced to further downgrade its growth projection of 6.9 per cent for the current fiscal
year.However, not all economists were as aggressive with their rate cut bets, saying the central bank will likely reserve some firepower and
wait to see how inflation pans out.In a bid to revive business activity, the government in September announced a sharp cut in the corporate
tax rate - to 22 per cent from 30 per cent.But while the tax cut brings the cost of doing business in India into line with its main Asian
rivals, the government's move will do little to fix a lack of spending power, economists say."The recent volatility in crude oil prices
and the fiscal measures announced by the government will have an impact on inflation in the medium-term and the fiscal deficit," said Shanti
Ekambaram, president of consumer banking at Kotak Mahindra Bank."Hence, expect the MPC to be more measured in its response with a rate cut
of 20-25 bps," she added.Inflation in August accelerated to a 10-month high but remained well below the central bank's medium-term target
of 4 per cent for a 13th straight month.If the RBI delivers a 25 bps cut as expected, traders will focus on the wording and tone of the
monetary policy statement for clues on further easing.Economists also said the policy transmission process could improve after the RBI
mandated banks to link all fresh loans to an external benchmark like the repo rate or the rate on short-term treasury bills since the start
of this month.The country's banks have passed only a small portion of the RBI's cuts this year to their customers.Get Breaking news,
live coverage, and Latest News from India and around the world on TheIndianSubcontinent.com
Catch all the Live TV action on TheIndianSubcontinent 24x7 and TheIndianSubcontinent India
Like us on Facebook or follow us on Twitter and Instagram for latest news and live news updates.
