As inflation moderates, Reserve Bank of India is likely cut repo rate by 25 basis points in its Mid-quarter Review of Monetary Policy today, experts said.
Rupa Rege Nitsure, Chief Economist, Bank of Baroda, said: “I expect the RBI to cut repo rate as inflation is also slowing despite staying above RBI’s comfort level. Repo rate must come down by another 100 bps by fiscal 2013-14.”
Repo (repurchase) rate, the rate at which the RBI lends shot-term money to the banks against securities, stands at 7.75 per cent at present. If the RBI wants to make it cheaper for banks to borrow money, it reduces the repo rate.
PRICES trending down
Wholesale price index (WPI) inflation touched a three-year low of 6.62 per cent in January, but inched up marginally to 6.84 per cent in February on the back of costlier food items and petrol. A year ago it was at 7.56 per cent.
Further, inflation for manufactured goods moderated to 4.51 per cent from 5.82 per cent in the year-ago period.
Says Indranil Sen Gupta, India Economist, Bank of America Merrill Lynch: “I do not expect RBI to cut cash reserve ratio (CRR) as growth will improve only after a couple of reductions in the repo rate. Growth is on the collapse and inflation seems to be more on the external front.”
Also, the RBI may conduct open market operations to meet short-term liquidity requirements, Gupta added.
CRR, the slice of bank deposits kept with the RBI, is currently at four per cent.
Paresh Sukthankar, Executive Director, HDFC Bank, said: “We will see another 50 bps cut in another couple of tranches. Arguably, we could have one in this policy itself.”
In addition, Finance Minister P. Chidambaram also stated there is room for the RBI to cut policy rates and that the central bank should take comfort from the government's efforts to cut the fiscal deficit.