50 bps rate cut likely in RBI policy review: Credit Suisse
'RBI is likely to cut key interest rates by 0.50%, to 7.5%, in the forthcoming monetary policy review.'
Positive surprises in the recent WPI inflation data - both headline and core - and likely ebbing of inflationary pressures may prompt the central bank to cut key interest rate in its next policy meet, it said.
"Following a break of nine months, we expect the Reserve Bank to cut the repo rate at its January 29 meeting, probably by 50 basis (0.5 per cent) points to 7.5 per cent," it said.
According to the report: "The move would be best described as a belated pat on the government's back following its September reform announcements."
Going forward, the repo rate is likely to drop to 6.75 per cent by July 2013, as the core and headline WPI inflation is likely to drop below 4 per cent and 6 per cent respectively by mid-2013, Credit Suisse Research Analyst Robert Prior-Wandesforde said in the research note.
Retail inflation, based on consumer price index (CPI), remained close to double digits at 9.90 per cent in November, while, the WPI inflation in November stood at 7.24 per cent.
Though these levels are much above the Reserve Bank's comfort zone of 5-5.5 per cent, inflation is showing some signs of easing in recent months.
"We doubt that a January cut requires inflation to drop further from here," the report said.
On October 30, RBI had pointed out that "the baseline scenario suggests there is a reasonable likelihood of further easing in the January-March quarter of 2013".
In the mid-quarter monetary policy review on December 18, RBI kept key interest rates unchanged.
It left the short-term lending (repo) rate and the cash reserve ratio -- the amount of deposits banks have to park with RBI -- unchanged at 8 per cent and 4.25 per cent, respectively.