Deutsche Bank expects RBI to cut interest rate twice by October

The strong mandate and the government's focus on fiscal consolidation may let the Reserve Bank of India (RBI) cut interest rates in June policy against the earlier expectation of a cut in the August policy, said Kaushik Das, chief economist, Deutsche Bank.

"The RBI would likely cut rates by 25 basis point on June 6, and another 25 basis points rate cut in August or October depending on how monsoon plays out," Das said.

The market is pricing in for the terminal repo rate to be around 5.5 percent and the bank also expects the same, said Das. “So today the policy rate is 6 percent and probably goes down to 5.5 percent in next few months,” he said.

With regards to the Budget, Das said "The fiscal deficit number would be put at 3.4 percent but there could be some upside risk to the number to around 3.5-3.6 percent of GDP for FY20 given the possibility of higher expenditure. In FY19, there could be a short fall in tax collections."

The fourth quarter GDP number is expected to be around 6.5 percent, while the consensus number is around 6.2-6.3 percent, he added.