RBI could cut rates by 25 basis points, says ING Vysya Bank

MUMBAI: Deepening crisis in Europe and sluggish domestic growth, could force Reserve Bank of India to cut key rates by 25 basis points, predicts ING Vysya Bank.

" The world seems to be falling apart as macroeconomic data from all over the US, Eurozone, UK, China, Brazil and India has been proving to be far worse than expected threatening to derail the already fragile global recovery in 2012," said Upasana Bharadwaj, chief economist, ING Vysya Bank, "We now expect a 25bps of rate cut in the forthcoming meeting (as against a pause earlier) given that since the April policy meeting the risks have increased on account of bleak global and domestic growth prospects and intensification of the European debt crisis"

Growth number from all areas, including manufacturing, core infrastructure and external sector have shown a slow down.

Core infrastructure industries, which consists for 37.8% of IIP or index of industrial production , recorded a mere 2.2% YoY growth in April. On the external front as well, export growth declined to 14.7% Month on Month in April.

Credit offtake, which reflects the health of the industries slowed to 19.5% year on year from 25.9% a year ago. Mirroring the weakness in the growth, the credit offtake has also slipped considerably. Credit to industry and services have slowed to 19.5% YoY (25.9% in April last year).

The situation has got stickier with inflationary pressures on account of steep fall in the value of rupee against the dollar and rise in prices of food and other primary articles persisting in the economy.

In the month of April, wholesale prices rose by 7.23%, while prices of food articles jumped by 10.49%, fuel and power index also grew by 11.03%.

"With inflationary pressures still abound, RBI is likely to remain cautious but sharp slowdown in growth is expected to result in the Repo rate cut by 50 bps in the remaining part of FY13," Bharadwaj said in her report.