The Reserve Bank of India is likely to cut the interest rates one more time in June, as per the IHS Markit report on the forecast for global monetary policy actions and resulting economic impact.
The London-based global information provider revealed that the rate cut will be initiated despite rising inflation and elevated fiscal deficit.
To boost economic growth RBI had cut interest rate by 25 basis points each in February and April.
“With both domestic and global growth slowing and inflation in India remaining below the RBI’s inflation target, it is now increasingly likely the RBI will proceed with another rate cut in June. Beyond June, intensifying inflation pressures and elevated fiscal deficits will leave little room for further accommodation, and we expect no additional rate cuts in 2019 with the monetary policy likely to switch to tightening in early-to-mid-2020,” report stated.
In case of a below normal monsoon, the prices of food and fuel may rise in the next few months and the headline inflation may surpass 5 per cent level by the second half of the running year, the report also said.
The average inflation would average 4.2 per cent in 2019 and 5.3 per cent in 2020. The monetary tightening cycle also appears to have ended for now, the report revealed.
Monetary policy easing, along with the relaxation of lending rules and greater election-driven fiscal spending in the first quarter of 2019, will provide some support to growth during the first half of 2019-20 fiscal, it said.