The brokerage firm, Bank of America Merill Lynch believes that the Reserve Bank of India will reduce its policy rates twice this year to accommodate the concerns about growth amid cooling price situation.
It also said, "The monetary authority will cut the key policy rates at the forthcoming policy review in April, and effect another reduction in either June or August depending on monsoons."
On February 7, the RBI cut its lending rates by 0.25 percent to 6.25 percent as it sought to up the sagging growth and slowdown in inflation.
The analysts at the Wall Street brokerage pointed to
governor Shaktikanta Das' vote for a rate cut and the
justification given for its expectation of two more rate cuts.
"As per the monetary policy committee minutes, Das
said 'the time is opportune to seize the initiative and create
a congenial environment for growth'," it said.
It said inflation will come in at 4.7 percent in FY20,
though more than the 3.5 percent in FY19 but well within the
target range of 2-6 percent mandated for RBI.
The report said the risks on the inflationary impact
of the fiscal policies, especially after the populist moves in
the budget, are "overdone", pointing out to the finance
ministry asserting to get the fiscal deficit at 3.4 percent.
The brokerage also said high real rates, which is the
difference between the policy rate and inflation, also support
for a 0.50 percent cut in the policy rates.
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