RBI likely to cut repo rate by 50 basis points: Experts

NEW DELHI: Receding inflation has raised hope for a further cut in the short-term lending (repo) rate cut by at least 50 basis points, which experts feel might come sooner than later.

"We see inflation at 5.5-6 per cent by March. RBI can now more aggressively cut rates. I expect 100 basis points repo rate cut this year. There could also be a reverse repo rate cut of 50 basis points," said Crisil Principal Economist D K Joshi.

For the week ended November 1, inflation slipped to single digit of 8.98 per cent for the first time in the last five months.

RBI has already reduced repo rate by 150 basis points to 7.5 per cent from earlier level of 9 per cent last month.
Following reduction in the repo rate and other benchmark rates, several banks have reduced the benchmark lending rate by 75 basis points, leading to cheaper home, commercial, auto and personal loan.

At the same time, RBI in the last one month has infused liquidity to the tune of Rs 2,70,000 crore by cutting the Cash Reserve Ratio by 350 basis points and Statutory Liquidity Ratio by 100 basis points.

Measures to inject liquidity as well as nudge interest rate lower in the near term is likely as inflation concerns rapidly recede, said Yes Bank Chief Economist Subhada Rao.

"I expect repo rate cut of 50 bps in the near term. There could also be a possibility of 25 bps cut in the reverse repo as well," she said.

Even corporate India has stepped up its demand for cut in lending rates as the inflation dipped to single digit at 8.98 per cent for the week ended November 1.

In view of falling prices, Ficci has asked RBI for further cut in the interest rates and easing of credit policy to fight slowdown in the industrial sector.

Global consultancy firm Dun and Bradstreet also expects the RBI to ease money supply further to spur economic activity in the wake of slowing industrial growth.

"Given the increasing downside risks to the growth momentum, coupled with tight liquidity conditions, we expect RBI to cut repo rate and CRR by 50 basis points each in the near future," it said.

A slew of measures taken by RBI, which include cut in reserve ratios and repo rate, have restored financial stability in the system, it added.

Meanwhile, inflation has eased to single digit figure, thanks to lower industrial oil, commodity and food prices that comes as a great relief to the government.

Inflation, as measured by the wholesale prices index, declined sharply by 1.74 per cent for the week ending November 1 from 10.72 per cent in the previous week.

The highest ever decline in the last many months is mainly on account of cheaper fuel items like naphtha, jet fuel, furnace oil and light diesel oil as a result of falling global crude prices, which is trading at 20 months low at USD 56.16 from USD 145 a barrel in July.