Chennai: The Reserve Bank of India (RBI) will likely wait to see the impact of the past two consecutive rate actions and assess the macroeconomic factors following general elections, said a report.
The report by Wall Street brokerage firm Goldman Sachs, said the apex bank would wait so that it gets a clearer picture, while many analysts had expected another rate cut in June policy.
The brokerage went one step further, saying it expects two rate hikes in calendar 2020 – a 25 bps each in Q1 and in the Q2.
In a 4:2 majority vote, the Central bank cut the repo rate to six per cent from 6.25 citing the need to support growth that has lost momentum of late in the first bi-monthly monetary policy announced Thursday. In the February policy, the RBI had also reduced the repo rate by 0.25 per cent to 6.25 per cent.
“We do not expect the RBI to change policy rates further in the June review as we expect it to evaluate the effect of its past rate actions, as well as assess any potential changes to other macroeconomic policies following the general elections,” the report said.
The report said maintaining the neutral stance implies that the MPC does not rule out keeping policy rates constant, or increasing them, if the upside risks to its inflation forecasts materialise. It sees average headline CPI inflation at 3.4 per cent for 2019 and four per cent in 2020.
“Given that our inflation forecasts remain below four per cent this year, growth remains below our estimated potential of 7.7 per cent, and the US Fed continues to be dovish, we project another rate cut by the RBI by 25 basis points in the Q3 of 2019.”
It said in 2020 as growth accelerates, headline inflation begins to pick up, and the Fed begins to increase rates, pressure is likely to build on the RBI to shift back to a tightening mode.
Earlier, in an emailed statement to News Today, MD and CEO, Tata Capital, Rajiv Sabharwal, said on the monetary policy, “In the first monetary policy of FY 19 – 20, RBI as expected delivered a 25bps rate cut in the Repo Rate. With the RBI’s recent long-term forex swap tool and OMO’s infusing liquidity, credit growth will continue to gain momentum. Further, India’s bond market will attract foreign inflows and boost market sentiments. With Inflation under control and signs of a stronger Rupee supports RBI’s neutral stance, which will fuel growth in the economy. The RBI may pause and closely watch for global growth cues and impact of the monsoon before any further intervention.”