The Monetary Policy committee (MPC) which will be meeting in first week of April is likely to cut the repo rate by 25 basis points owing to weak economic activity, benign inflation and slow global growth, says a report by brokerage firm Goldman Sachs.
“We now think a 25 basis points cut is likely in the April meeting. Our thinking is driven by three factors- continued weakness in economic activity, still benign inflation and soft global growth, and a dovish Fed,” Goldman Sachs said in a report.
MPC will be meeting from 2nd to 4th April as part of its bi-monthly exercise to decide to decide over key economic issues like lending rates, inflation and rate cuts.
Last time RBI slashed the key lending rate-repo rate by 25 basis points and also changed the monetary policy stance from “calibrated Tightening” to “Neutral”. RBI slashed rates keeping in view the Benign food inflation, and the continuously surging core inflation- Non-food and non-fuel component of inflation, RBI governor said after MPC meeeting.
The report by Goldman Sachs also expects the inflation to remain below the RBI’s medium term target before end of 2019. While for the coming fiscal year, the brokerage firm expected real GDP to be at 7.5% compared to 7.1% in the current fiscal year.
Also, the report lowered the headline CPI (Consumer Price Index) Inflation for FY 2019 from earlier 3.6% to now 3.4%.
It expects some pick-up in food inflation over the course of the year as favourable base effects begin to wane and momentum builds as indicated by the recent prints on consumer and wholesale prices.
Earlier, brokerage firm expected no change in the rates for the April-MPC meeting. However, it also said that there are still significant chances of no repo rate cut by RBI.
“Should policymakers continue to be in a wait and watch mode to gauge the progress on transmission of the past rate cut in February, they may choose to loosen later rather than sooner,” it said.
Along with this, the report also expected another 25 basis points rate cut in the third quarter of 2019.