Crisil expects 50 bps rate cut by RBI next fiscal
04 Mar 2015
Responding to the RBI's rate cut by 25 basis points (bps) bringing the repo rate down to 7.5 per cent, today, Wednesday, rating agency Crisil said it expects the RBI to cut rates to the tune of 50 basis points next fiscal.
It said, "Going ahead, we expect the RBI to deliver rate cuts to the tune of 50 basis points (bps) next fiscal – with a high likelihood they would be frontloaded. On inflation, we expect the Consumer Price Index to average 5.8 per cent below the central bank's target of 6 per cent for FY16."
One reason for the surprise rate cut, it said, was the budget has been non-inflationary.
However, Crisil said it believes that achieving the target of 4 per cent beyond FY16 "is still a tall order and requires structural changes in the food supply chain to tie down food inflation sustainably. Also, risks to the 6 per cent target for FY16 are present – although weak at the moment."
It said today rate cut could nudge banks to move faster on cutting lending rates and give them more comfort on the future trajectory of policy rates.
The apex bank justified the latest action – coming in before the next bi-monthly meeting on 7 April, as "anticipatory", since the current environment suggests room for an easing monetary policy stance.
The reduction comes in the backdrop of three factors - (1) February inflation data at 5.1 per cent was well within the central bank's target, (2) the Union budget affirmed commitment to improving the quality of fiscal adjustment and budgetary measures expected to improve the supply situation over the medium run, and (3) the agreement between the government and the RBI on a new monetary policy framework entailing guidance on how this mandate will be implemented by the RBI.
