YES Bank expects a 25-basis-point cut in key rates during the monetary policy review of the Reserve Bank of India on September 29.
According to YES Bank Senior President and Chief Economist Shubhada Rao, inflation for August is trending low and the future trajectory also indicates a further softening by 50 basis points compared with RBI’s January 2016 projection of 6 per cent.
“Inflation (CPI) for August is at 3.66 and future trajectory indicates that inflation may surprise us by almost 50 basis points. Hence, we feel that there may be scope for rate cuts to the tune of 25 basis points,” she said on the sidelines of a banking conclave organised by the Confederation of Indian Industry.
The future course of rate cuts will depend on how the inflation outlook plays out — like commodity prices correcting further or supply side of economics improving (in terms of agriculture, manufacturing and services). Then there could be downside pressures on inflation giving further room for rate cuts.
Food inflation According to Rao, while there are some pockets of concern because of deficit in the monsoons, two consecutive years of bad monsoons have however, not seen food prices shoot up. This is mainly, on account of government releasing food stocks.
“As a result (of government being proactive), food inflation is not at levels where it was some three years ago,” she said.
Growth outlook Pegging the GDP growth at 7.8 on account of weak global cues and likely contraction in exports, Rao said the stress should rather be on “investment-led” domestic drivers of growth.