Expect RBI to cut CRR, repo rate by 25 bps: Edelweiss

MUMBAI: Edelweiss expects the Reserve Bank of India to announce a 25 bps cut in both CRR and repo rate at its monetary policy review meeting tomorrow.

“In its monetary policy review meeting on October 30, we expect a 25bps cut in both CRR and repo rate. While the reduction in CRR will largely be to preempt liquidity tightening in the busy credit season, RBI will also cut repo rate by 25bps, in our view, to complement the recent government actions and support growth,” an Edelweiss report said.

According to the brokerage, the central bank will be in a position to reduce on the back of better-than expected monsoon season, rupee appreciation, downward pressure on global commodity prices and the government’s fiscal tightening initiatives.

Edelweiss is of the view that in the past few of months, liquidity has improved considerably because of the RBI’s sustained open market operations and CRR cuts in H1FY13.

“Further, Mint Street’s interventions in the forex market to check rupee volatility have also largely ceased. This, along with a slowing credit growth, has led to improvement in liquidity conditions. All of this has led to sharp fall in banks’ borrowing cost with CP and CD rates falling sharply,” the brokerage added.

The brokerage expects various measures by RBI like CRR cut and OMOs, among others, to maintain liquidity within the comfort zone in the coming months.

According to analysts at Edelweiss, the inflation outlook has improved from the previous policy due to several factors.

Food inflation is unlikely to spike on the back of good monsoon and softening international agri prices. Global industrial commodity prices are declining and the rupee has appreciated over the past couple of months and this will help address concerns over imported inflation in the coming months.