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BofA expects 50 bps rate cut by March

The shift in stance implies that more cuts are on the way as long as prices remain under check.

ET Bureau|
Jun 14, 2019, 08.00 AM IST
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Mumbai: The Reserve Bank of India could cut interest rates by at least 50 basis points by March as inflation remains benign and growth falters, said Bank of America Merrill Lynch. “We expect the RBI Monetary Policy Committee (MPC) to cut 25 bps on August 7 if rains are normal, pause as inflation goes up on base effects in end-2019, and cut again by March,” Indranil Sen Gupta, India economist stated in the report.

“Our US/China economists expect the Fed/PBoC to cut 75 bps by March 2020. 10y (benchmark yield) has already come off about 120 bps from peak. We continue to expect lending rates to fall 50 bps by March 2020.”
bofa-graph

In its June bi-monthly policy, the RBI lowered interest rates for the third time in succession to a nineyear low and shifted its monetary stance to ‘accommodative’ from ‘neutral’ to help revive the economy, which has slowed the most in five years.

The shift in stance implies that more cuts are on the way as long as prices remain under check. The repo rate, at which the RBI lends to banks, was cut to 5.75 per cent from 6 per cent, the lowest it’s been since 2010. The cash reserve ratio (CRR) and statutory liquidity ratio remained unchanged. An ET poll of 28 analysts and economists had predicted a quarter point cut.

“We expect the RBI to allow the money market to continue in reverse repo mode till September to assure the market of sufficient liquidity in the October-March industrial ‘busy’ season,” said Sen Gupta.

“Our liquidity model suggests that the RBI needs to inject $35billion of reserve money/durable liquidity in FY20,” he said.

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