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Moody’s Analytics expects RBI to cut rates by another 25 basis points

04 Aug 2015 Evaluate

Amid growing voices from India Inc for a rate cut because of low wholesale inflation and slowdown in industrial growth, Reserve Bank of India (RBI) will be announcing its Third Bi-monthly Monetary Policy Review, 2015-16. Though there is wide expectation that RBI will keep interest rates unchanged at its policy review, but still there are hopes of another rate cut. During the calender year, RBI has reduced the rate thrice by 0.75 percent. It was cut by 0.25 percent each in January, March and June.

Research firm Moody’s Analytics, a division of Moody’s Corporation, which is engaged in economic research and analysis has said that the Reserve Bank is likely to cut the benchmark rate by 0.25 per cent in its monetary policy review, as inflation is likely to remain subdued on the back of average rainfall and lower commodity prices. On the demand side, though it cautioned that the economic engine has yet to fully fire without key reforms. Thus, private investment has remained on the sidelines.

In its report the firm has said that dim forecasts of below-average rains have not come to fruition and rainfalls have been closer to the long-term average with encouraging signs for kharif crop sowing. Monsoon rainfall has picked up in July and the pace is likely to continue in August.

Moody’s Analytics also said that recent global developments also suggest limits to inflation pressure, with the tumbling of global commodity prices, particularly crude oil, on the back of the Iran nuclear deal. This would help ease RBI's concerns of rising fuel costs. Overall, the subdued inflation profile suggests RBI should lower rates and focus on economic growth.

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