FY 2017 to see lowered rates, says report
Posted on: 30/May/2016 5:42:14 PM
A report by Morgan Stanley has said that the Reserve Bank of India (RBI) is expected to keep key rates unchanged in the next policy meeting on June 7. The report also said that the Bank may lower rates by another 50 bps (basis points) during the current financial year.
The report said, Retail inflation is likely to moderate going forward and is expected to decelerate to 4.5 per cent by March 2017. Based on our CPI forecast and RBI`s stated real rate target of 1.5-2 per cent, we expect RBI to lower rates by another 50 bps in FY2017.
In April, retail inflation went up to 5.39 per cent on higher food prices. However, in recent month, a reversing downward trend is seen. Says the report, We see a higher chance of RBI reducing rates in the October meeting. However, there is a possibility of RBI cutting rates in the August meeting if the rainfall arrives in time and is significantly above normal by end of July. Post that, we expect RBI to move in December or February meeting, with the key event to watch being Fed monetary policy action.
In April, the RBI had reduced the policy rate by 0.25 per cent to 6.5 per cent. While addressing growth outlook, the report said, The macro environment has been on a steady improvement in the past two years; however, the pace of growth recovery has been slower than anticipated. We believe the recovery in this cycle will be led by domestic demand, i.e. consumption, public capex and foreign investment. We believe this will be a longer duration expansion cycle with GDP growth expected to accelerate and inflation expected to remain at or below 5 per cent over the next two years.
