RBI policy outcome at 2.30 PM today: Here's what experts say

NEW DELHI: The outcome of second bi-monthly monetary policy is scheduled at 2.30 pm later in the day. While most analysts expect a status quo on the policy rate, which stands at 6.25 per cent, experts believe the six-member monetary policy committee ( MPC) of the RBI may sound more dovish and open doors for rate cuts in policy reviews in months to come.

Here is what various stocks and brokerages say on the likely outcome:

BofA-ML

The brokerage said that, while a slow growth and soft inflation can surly justify a rate cut on Wednesday itself, the RBI MPC will likely want to wait for clarity on the monsoon and transfer of the "demonetisation dividend"-- which it estimates at Rs 60,000 crore -- to the ministry of finance after a shift in stance to neutral from accommodative of late.

The brokerage see a rate cut on August 2 and believes that it would signal a lending rate cut to banks before the busy season begins in October.

HDFC Securities

This brokerage expects the RBI to metamorphose into a dove from a hawk that it once was at the last meeting.

While we would have liked the RBI to cut rates now, it won’t, the brokerage said in a note, noting that the RBI may like to give itself the elbowroom to see how the monsoons and the other economic indicators progress.

“A change of stance before it actually goes out and cuts rates will also add to its credibility as an institution that does not take the markets by surprise,” the brokerage said.

Edelweiss Securities

This brokerage too believes that the RBI may not budge even as the case for rate cut is strengthening but would show a dovish tilt in the monetary stance.

It noted that the inflation data has been softer than expected and that a stronger rupee, softer global commodity prices and fading El Nino risks augur well for the outlook.

“Q4 growth data too has been softer than expected, with credit growth and capex related indicators exhibiting sustained sluggishness. Externally, dollar remains quite stable and India’s BoP dynamics has been very comfortable. We think that economy needs policy support and macroeconomic backdrop offers ample room for same. While the policy may maintain status quo, rate cuts are likely over next 6-9 months,” it said.

UBS

UBS is expecting a prolonged pause and neutral policy stance from the MPC.

It in fact believes that any uptick in underlying price pressure would push it to hike rates.

“In such a scenario, we would assign a higher probability of a rate hike to commence in FY18 rather than being delayed to FY19. That said, we believe any tightening (limited to a cumulative 50bp hike in the repo rate) would be largely a pre-emptive step to ensure inflation expectations remain contained,” it said in a note.

Still-weak credit growth, a delayed investment cycle recovery and a gradual economic recovery imply that any aggressive interest rate hikes are not in the cards yet, it added.

CHANGES IN RBI POLICY RATES SINCE 2001

<div class='tableauPlaceholder' id='viz1496728783034' style='position: relative'><noscript><a href='#'><img alt='Reverse Repo Rate ' src='https://public.tableau.com/static/images/Re/ReverseRepo-April2017/ReverseRepoRate/1_rss.png' style='border: none' /></a></noscript><object class='tableauViz' style='display:none;'><param name='host_url' value='https%3A%2F%2Fpublic.tableau.com%2F' /> <param name='site_root' value='' /><param name='name' value='ReverseRepo-April2017/ReverseRepoRate' /><param name='tabs' value='no' /><param name='toolbar' value='no' /><param name='static_image' value='https://public.tableau.com/static/images/Re/ReverseRepo-April2017/ReverseRepoRate/1.png' /> <param name='animate_transition' value='yes' /><param name='display_static_image' value='yes' /><param name='display_spinner' value='yes' /><param name='display_overlay' value='yes' /><param name='display_count' value='yes' /></object></div> <script type='text/javascript'> var divElement = document.getElementById('viz1496728783034'); var vizElement = divElement.getElementsByTagName('object')[0]; if ( divElement.offsetWidth > 800 ) { vizElement.style.width='514px';vizElement.style.height='559px';} else if ( divElement.offsetWidth > 500 ) { vizElement.style.width='514px';vizElement.style.height='559px';} else { vizElement.style.width='100%';vizElement.style.height='569px';} var scriptElement = document.createElement('script'); scriptElement.src = 'https://public.tableau.com/javascripts/api/viz_v1.js'; vizElement.parentNode.insertBefore(scriptElement, vizElement); </script>