State Bank of India, the country’s largest commercial bank, sees the RBI going in for a 50 basis point cut in repo rate in the monetary policy review on April 5.
This is reflected in the latest March issue of ‘Ecowatch’, a research report put out by SBI’s Economic Research Department. Repo rate, or the rate at which banks borrow funds from RBI, currently stands at 6.75 per cent.
In the February 2 monetary policy review, the central bank had kept the repo rate unchanged at 6.75 per cent. .
The latest Ecowatch says the stage is now set for a repo rate cut on April 5. “We believe, given the current circumstances, a 50 basis point rate cut looks the base case,” the SBI research report said.
In 2015, the RBI had cut repo rate by 125 basis points. The extent of monetary transmission by lenders has been only to the tune of about 70 basis points.
To enable better monetary transmission, the government had on March 18 cut interest rates on several small savings schemes.
SBI’s Ecowatch has described the recent move by the government to slash interest rates on small savings schemes as “bold”, and stated that it will help in “better monetary transmission”.
However, SBI is of the view that interest rate on Public Provident Fund (PPF) should have been tweaked only as per age structure, and that of Sukanya Samriddhi should have been left untouched, given the social objective of protecting the girl child.
View on inflation On inflation trajectory, SBI sees a “significantly benign path” with the consumer price index (CPI) going below 5 per cent in June 2016 and possibly below, or just above, 4 per cent thereafter.
The average CPI inflation for FY17 is projected at 4.6 per cent.
On un-seasonal rainfall impacting inflation, the situation, the report says, is not as grim as last year because the showers have been followed by bright sunshine. Barring central India, the rainfall has been deficient in all the regions.