NEW DELHI: The Reserve Bank is expected to cut therepo rate by 25 bps to 7.75 per cent at its quarterlypolicy meeting on Tuesday. If realized, the rate cutwould be the first in nine months, CLSA has said in a note.
The RBI had last cut the policy rate in April 2012 by an unexpectedly large 50 bps, but stayed put thereafter owing to concerns over fiscal slippage and stubborn inflation.
Financial markets have already priced in the anticipated 25 bps cut in the repo rate. "A cut in the cash reserve ratio ( CRR), currently at 4.25 per cent, cannot be totally ruled out, but frankly there is less of a need for it," said the CLSA note.
According to the brokerage firm, the RBI's guidance this time will be more important than before. It has already signalled its pro-growth bias, but has been less upbeat on the current level of inflation.
Indeed, while WPI inflation has eased (although it still remains high), CPI inflation remains above 10 per cent YoY.
"The central bank will highlight the conflicting signals from the two inflations measures to justify its cautious stance on the inflation outlook. It will continue to place greater weight on WPI," added the report.
The RBI had last cut the policy rate in April 2012 by an unexpectedly large 50 bps, but stayed put thereafter owing to concerns over fiscal slippage and stubborn inflation.
Financial markets have already priced in the anticipated 25 bps cut in the repo rate. "A cut in the cash reserve ratio ( CRR), currently at 4.25 per cent, cannot be totally ruled out, but frankly there is less of a need for it," said the CLSA note.
According to the brokerage firm, the RBI's guidance this time will be more important than before. It has already signalled its pro-growth bias, but has been less upbeat on the current level of inflation.
Indeed, while WPI inflation has eased (although it still remains high), CPI inflation remains above 10 per cent YoY.
"The central bank will highlight the conflicting signals from the two inflations measures to justify its cautious stance on the inflation outlook. It will continue to place greater weight on WPI," added the report.
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