Thursday, 8 December 2016

RBI may cut rates by up to 50 basis points next year

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The rate cut cycle may not be over, and the Reserve Bank may go for a 25-50 bps cut in calendar year 2017, as the underlying disinflationary forces are expected to continue next year. RBI surprised with a status quo on policy, premised on upside risk to January-March quarter inflation and limited transient growth drag owing to demonetisation. According to Kotak Institutional Equities, "The tone was hawkish and we do not rule out another status quo in February, albeit contingent on the CSO advance estimate of FY2017 GVA". 

If the CSO's advance estimates of GVA indicate a significant slippage in third quarter (October-December) of FY2016-17 growth compared to RBI's estimate, "RBI may favour a cut in February”.

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