The expectations of a rate cut by RBI tomorrow is almost unanimous. A CNBC-TV18 poll among bankers and economists shows that 95% expect the central bank to cut the repo rate. However, it is a divided house on the question of RBI turning its policy stance from hawkish to dovish, reports CNBC-TV18's Gopika Gopakumar.
The market is clearly positioned for a rate cut from the RBI Governor on January 29. Of the total, 95% expect a rate cut; of which 90% see a 25 bps cut and 5% a 50 bps cut. Expectations on a cash reserve ratio (CRR) cut are less intense. Only 30% expect a CRR cut; 70% said the governor may prefer using open market operations (OMO) or open market purchase of bonds to bring liquidity.
In fact respondents were asked how much headroom the governor has to cut rates in 2013, given the deficit, the savings rate and inflation constraints, 45% said not much 25 or 50 bps at best. However the balance 55% sees scope for a 75 to 100 bps cut in 2013.
Hence on the governor's policy stance only 50% thought he would be more dovish, given the state of the economy while 50 %thought his stance would continue to be dominated by inflation and deficit concerns.
Given the faster than expected fall in inflation 50% expect RBI to scale down its March 31 inflation forecast to below 7.5%. While 50% expected the RBI to not change its forecast as the rise in diesel price will add on some points to the WPI.
On gross domestic product (GDP), 60% of our respondents said the governor may scale the full year forecast to below the prevailing estimate of 5.8%
But key is what the banks do.
Will they cut lending rates if the RBI cuts repo? 70% sad yes. But will they cut deposit rates if RBI cuts the repo, only 60% said yes.