Markets may interpret rate cuts in bands not points
New Delhi: For investors, the outcome of the Reserve Bank of India's (RBI) policy review meeting on Friday will mostly be about getting their bets right. But with the RBI shifting away from the convention at its last meeting, forecasting the same will be a challenge.
The RBI had announced a 35 basis points rate cut against a conventional 25bps at its last MPC.
HDFC Chief Economist Abheek Barua believes markets will interpret them as bands rather that point forecast. The Dalal Street would consider 15-25bps cut as small and "ultra-cautious", moderate and "some-what cautious" would be 35bps cut, Barua said.
On the higher side or an "aggressive" one will be 50bps cut, which can be expected this time especially after the gross domestic product (GDP) growth rate dropped to 5 per cent in the last quarter.
RBI Governor Shaktikanta Das, according to the minutes of the meeting, justified the RBI's unconventional move saying, "the economy needed a larger push" and a reduction in the policy repo rate by the conventional 25bps would be inadequate.
Suvodeep Rakshit, Vice-President & Senior Economist, Kotak Institutional Equities, said with inflation in its comfort zone, despite recent onion price hike, revisions to its growth forecast warranted a sharper-than-usual rate cut at the October policy meet.
"We pencil in a 40bps rate cut, which should be a signal to the market that the MPC (monetary policy committee) is not quite done with as it front-loads the remaining couple of rate cuts in the cycle," Rakshit said.
The RBI at its last policy meet preceived domestic demand slowdown and investment activity losing traction.
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