The Reserve Bank of India's six-member monetary policy committee (MPC), headed by governor Shaktikanta Das, will announce its decision on benchmark repo rate on Thursday. Though markets are widely expecting that the central bank will leave the rates unchanged while maintaining an accommodative stance owing to rising inflation, there are some who think that a rate cut might be possible as growth concerns persist, with the Coronavirus epidemic adding another element of uncertainty. Here’s what banks and brokerage houses are expecting from the sixth bi-monthly Monetary Policy Statement for 2019-20:
Elara Capital expects MPC to stay on hold throughout calendar year 2020. If the inflation trajectory means revert to 4% by the fourth quarter of 2020-21, there is a slight possibility of a rate cut, it said.
“We expect CPI (consumer price index) inflation to average 5% in FY21E against 4.9% in FY20E amid higher food prices. CPI inflation is expected to remain in the range of 7-8% over January-March 2020E and nearly 6% until June-July 2020E. The inflation prints above the upper end of the inflation target set by RBI diminishes the scope of rate cuts,” said Elara Capital.
Kotak Securities expects CPI inflation to trend towards 6.2% by March 2020. It said even though the output gap remains negative and that any growth recovery is likely to be slow and prolonged, the MPC is expected to remain concerned about the significantly high CPI inflation.
“MPC will remain on an extended pause but there is an increased probability of a shift in policy stance. While food prices may soften from January onwards owing to the arrival of the Kharif produce and robust Rabi sowing, we believe that the moderation will be gradual as the food inflation has become more generalized,” said Kotak Securities.
Brokerage firm Edelweiss Securities seemed slightly more hopeful about a rate cut. It pointed out that in recent weeks, deflation has set at vegetable prices. Also, crude oil prices have dipped 12% since the previous policy in December. So, to that extent, inflation readings have peaked out, it said.
Besides, in the recently presented Union Budget, the government has abstained from going for a big fiscal push so all this should be comforting to monetary authorities, Edelweiss said.
“Amid improving inflation prospects, government maintaining fiscal prudence and lingering weakness in the economic activity, we perceive an outside chance of the RBI taking a proactive rate cut in the February policy review. Even if not, we maintain that rate easing will resume in FY21. We expect 50-75 bps cut in repo rate in 2020,” said Edelweiss Securities.