Foreign banks expect the Reserve Bank of India (RBI) to go in for a likely Cash Reserve Ratio (CRR) cut on Friday (December 6) to boost domestic liquidity even while keeping repo rate unchanged. 

“We expect two repo rate cuts of 25bp over February and April, taking the repo rate to 6 per cent. Our real rate maths suggests that this will be a shallow rate cutting cycle of 50basis points.”

“But even before that, the RBI may infuse domestic liquidity, via a possible 50 bp CRR cut on 6 December –and over the next few months also bring out a host of other instruments to infuse the necessary liquidity. It’s time to act, strategically,” Pranjul Bhandari, Chief Economist India and Indonesia, HSBC Global Research said in a research  note titled “India: RBI Watch—An economy at the crossroads”.

Radhika Rao, Executive Director & Senior Economist, DBS Bank, said in a note, “A dovish hold is likely with some liquidity easing measures this week.”

A wildcard is the global environment, as a sharp rally in the USD has driven the rupee to a record low and necessitated stepped up defence, she noted. “These risks suggest that the central bank might embark on an easing cycle, but the quantum of cuts might be restrained due to global uncertainties and the need to preserve differentials”, Rao added.

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