Citi expects at least 100-150 bps cut in key policy rates

NEW DELHI: Financial services firm Citi today said it expects the Reserve Bank to cut key rates by at least 100 to 150 basis points in the near future due to low inflation.

"We expect a minimum 100-150 basis points cut in the repo and reverse repo rate, CRR and SLR in the near term," Citi said in its report.

The report added that RBI can take the measures even after the moral code of conduct comes into place following the Lok Sabha election announcement.

The government will not be able to announce any fiscal measures, but "the moral code of conduct does not prohibit the RBI from taking any measures", the report said.

It further added, "Although, we could see a token cut on Jan 27, we expect bulk of the easing to take place once the moral code of conduct comes into play."

With elections due by April-May, the Election Commissioner is likely to announce the schedule dates by February, it said.

Citi said that since Sept 15, the RBI has eased policy rates by 350 basis points (short-term lending and borrowing rate) and the cash reverse ratio (the percentage of amount banks keep with RBI) by 400 basis points, but banks have reduced rates by 150-200 basis points.

"Fear of non-performing loans (NPLs) has made banks cautious, resulting in aggressive policy easing not being matched by banks lowering rates or increasing advances," it added.

Citi said the tightening financial conditions, weakening economic activity could lead to growth remaining weaker for longer.