The Reserve Bank of India (RBI) is most likely to trim the rate cut further during the monetary policy review meet amid poor economic activity and high inflation, Goldman Sachs said in a report.
According to the report, the RBI is expected to cut policy rate by 25 bps in October, and another 25 bps in December.
“Based on the weakness in activity, still benign inflation, and soft global growth with central banks around the world in an easing mode, we believe the RBI MPC will almost certainly cut the policy repo rate on October 4th,” Goldman Sachs said in a report.
The central bank, which reduced the key policy rate four times already in the current calendar year, is all set to announce its next bi-monthly monetary policy on October 4.
As per the report, an additional 50 bps rate cut by December will create some disturbances. With this the headline CPI inflation is expected to reach close to 4 percent, closing the chances for further easing to continue.
Besides, the Reserve Bank of India (RBI), which has been acting responsive to global and domestic growth concerns, is likely to get some support from the recent cut in corporate tax rates, the report noted.
According to Goldman Sachs RBI is likely to trim its growth forecasts from 6.9 percent to somewhere in the range of 6.0-6.5 percent.
“The downward revision mainly reflected lower-than-expected activity indicators in the first quarter of FY20, but also lower sequential momentum in the second quarter, compared to our earlier assumptions,” the report noted.
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