RBI likely to go for another rate cut in August, says BofA-ML

The Reserve Bank of India would most likely cut its key rates by 25 basis points in the policy review meeting scheduled on August 9th. If done, this would be because of benign inflation, low IIP growth and good monsoon forecast, says a report.

As per a report by Bank of America Merrill Lynch (BofA-ML), the international financial services major, this 25 bps rate cut could happen as CPI inflation came in at a below-expected 4.8% for March, and along with this, the February IIP grew an anaemic 2%.

"We have grown more confident of our call for the RBI to cut policy rates 25 bps on August 9," it said in a research note.

It was only this month that RBI had reduced its policy rate by 0.25% to bring it to 6.5%, which was its lowest level in more than five years. This first rate cut in six months saw RBI lowering its rate by 1.5% cumulatively since January 2015.

However, turns out that the industry wants even more rate cuts from RBI so that investment can be given the required boost.

The global brokerage firm has estimated that leaving aside extraordinaries like a notional hike in housing price inflation due to the 7th Pay Commission or an arithmetical rise in inflation due to oil price hikes from a low base, the CPI should average around 5% this fiscal.

Image source