Reserve Bank will go for another round of rate cut in its December review, keeping in line with its dovish stance in the last policy, which might be followed by a pause in the medium term, according to foreign brokerage HSBC.
“After the unanimous rate cut call in the MPC and going through minutes of the meeting, we feel the RBI will go for another 25 bps rate cut in the December review.
However, we are not expecting for more cuts after December,” HSBC India Chief Economist Pranjul Bhandari told the news agency.
She said inflation-inducing factors like house rent allowances arising from the seventh pay commission awards, implementation of Goods and Services Tax and also a likely review of fiscal deficit targets will prevent the RBI from cutting rates further in the near to medium term.
At its maiden rate review, which was also the first review by Governor Urjit Patel, the six-member Monetary Policy Committee (MPC) surprised all by its unanimous rate cut call amid mixed expectations among analysts.
The commentary after the review, coupled with the minutes of MPC meeting released by RBI, has increased expectations of one more round of cut as inflation is expected to go down further but there are differing views on what stance it takes after that. Bhandari said the rate stance after the December policy hinges a lot on RBI’s internal targets on inflation.