Expect 75-100bps rate cut by RBI for CY13: Microsec
Microsec has come out with its report on "Reserve Bank of India (RBI)'s third quarter monetary policy review". The research firm expects 75-100bps rate cut, backed by the expectation of further softening inflation figures and reduction in Current Account Deficit (CAD) for the full year of CY13.
January 29, 2013 / 19:38 IST
Microsec has come out with its report on "Reserve Bank of India (RBI)'s third quarter monetary policy review". The research firm expects 75-100bps rate cut (including current cut), backed by the expectation of further softening inflation figures and reduction in Current Account Deficit (CAD) for the full year of CY13. However, RBI may cut the rate gradually rather than significantly. Growth inflation dynamic may be the key ticker to the regulator's further policy stance.
The Reserve Bank of India (RBI) has released the Third-Quarter Monetary Policy review and surprised many economists considering RBI's cautious view in its macroeconomic report. Albeit, the policy stance is in line with our expectations, CRR cut was not expected on a consensus basis. RBI cut Repo Rate and Cash Reserve Ratio (CRR) by 25bps each to 7.75% and 4.00% respectively. The Reverse Repo Rate under the Liquidity Adjustment Facility (LAF) determined with a spread of 100 basis points below the repo rate, stands adjusted to 6.75%. Whereas, the Marginal Standing Facility (MSF), which is determined with a spread of 100 basis points above the Repo Rate, stands adjusted to 8.75% and Bank Rate also stands adjusted to 8.75%. Moreover, 25bps cut in CRR or the portion of deposits banks keep with the RBI will inject ~INR180 billion of primary liquidity into the banking system. However, RBI indicated that food inflation which is pushing up consumer price inflation is still a matter of concern and there is an increasing likelihood of inflation remaining range bound around current levels going into 2013-14. This provides space, albeit limited, for monetary policy to give greater emphasis to growth risks.Falling WPI inflation led by manufacturing inflation and declining growth has mounted pressure on RBI to touch the repo button this time.For the full year of CY13, we expect 75-100bps rate cut (including current cut), backed by the expectation of further softening inflation figures and reduction in Current Account Deficit (CAD). However, RBI may cut the rate gradually rather than significantly. Growth inflation dynamic may be the key ticker to the regulator's further policy stance.Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.To read the full report click on the attachment 
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