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RBI May Cut Policy Rates Even If Fed Hikes, Says BofA-ML

Friday, August 29, 2014
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NEW DELHI: The Reserve Bank of India could cut policy rates by 75-100 basis points starting early 2015 even if the U.S. Federal Reserve hikes rates next year, says a Bank of America Merrill-Lynch report.

According to the global financial services major, the monetary policies of the developed market and emerging markets, especially India, has turned "asynchronous" in recent years.

"We believe that the RBI can continue to cut policy rates by 75-100 bps in 2015 from January to revive growth even if the Fed tapers off," BofA-ML said in a research report.

The global brokerage firm believes that there are three main reasons why the RBI is likely to go for a rate-cut even if the Fed hikes rates next year.

First, the rate differential between the country and U.S. are already very high. Secondly, forex reserves are key to the stability of the rupee, and thirdly, a tightening by Fed is exported to cool "imported" inflation by stabilising commodity prices.

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Source: PTI

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