There is room for cutting interests rates by 60bps further in 2020, according to a research report by DBS.
"Over the next four quarters starting 4Q19, we assume inflation below target at 3.8 per cent and growth at 6 per cent. Factoring in these and our choice of real interest rate quantum, points to a terminal policy rate of 4.4 per cent, which leaves room for a 60bps further easing in 2020," said a report by Radhika Rao, Economist, DBS Group Research.
After cutting the policy repo rate by an 'unconventional' 35 basis points in the August bi-monthly monetary policy review, the Reserve Bank of India is expected to cut it further by up to 25 basis points in the upcoming October 4 review to complement the recent corporate tax cuts announced by the Government to reverse the slowdown in growth.
DBS said: "Apart from purely macro assumptions, the role of the government’s fiscal stance (to a greater extent) and global developments (at the margin) will also influence the central bank’s policy path... A clear shift towards consumption stimulus, however, might but the RBI on the defensive. By most measures (except the bearish assumption), beyond December 2019, we are about 2-3 rate cuts from reaching the terminal policy level."