RBI could go for a rate cut soon! Here’s why

Reserve Bank of India (RBI) has enough reasons to go for another rate cut this year, including a sharp fall in global crude oil prices, met department’s predictions of a better monsoon, as well as possibility of limited impact from the goods and services tax (GST) on inflation.

RBI could also lessen its interest rates because of these reasons.

Talking of global crude oil prices, there was a fall of 5% after oil producing countries voted not to deepen output cuts for another nine months. Oil is India's largest import and as global prices fall, RBI would have one less thing to worry about.

In February during the monetary policy review, RBI had shifted its stance to neutral from accommodative, which meant that chances of a rate cut were low. However, in April, it changed its stand and cited several reasons like risks of uncertain monsoon, Seventh Pay Commission allowances, possible one-off effects of GST, as well as risks due to higher global commodity prices.

"Accordingly, inflation developments have to be closely and continuously monitored with food price pressures kept in check, so that inflation expectations can be re-anchored. The future course of monetary policy will largely depend on incoming data on how macroeconomic conditions are evolving, RBI governor Urjit Patel had said in April."

As per economists, there are high chances of RBI softening its rates. "We have stuck to our call for a 25 basis points cut in August and the current conditions support this," Indranil Sengupta, chief India economist at Bank of America-Merrill Lynch told ET.

"I expect the RBI to soften its stance in its June policy. So far, there has been little impact of the Pay Commission and even the effect of GST is marginal," Sengupta said.