RBI May Cut Rates By 0.25% Again in FY 16: Citigroup

The Reserve Bank of India may cut the key interest rate by 25 basis points again in this fiscal year as inflation is expected to be 5%, Global Financial Services Major Citigroup has given this statement in a report. We can expect a 25 basis point cut in 2015-16, the report stated. Citigroup

“Going forward we see a room of further 25 bps cut based on our estimate of average CPI inflation at 5% in FY16 and RBI’s comfort range on real rates at 150-200 bps,” Citigroup India economist Anurag Jha said in a research note.

The report mentioned that further relaxation can be expected if Consumer Price Index-based inflation continues to drop the RBI’s projection and if RBI meets its target of 4% inflation before 2018.

“Given RBI’s mandate to contain CPI inflation within 2%-6%, it is natural that the CPI inflation will continue to dominate policy narrative,” it said.

In the June 2 policy review meet, the RBI had slashed repo rate by 0.25% for the third time this year to encourage investment and growth. The Repo rate is 7.25per cent after the rate cut in June and the cash reserve ratio (CRR), and statutory liquidity ratio (SLR) is 4% and 21.5%, respectively.

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