CARE Ratings expects a 25-bps rate cut in December quarter

Moneycontrol BureauIn its bi-monthly monetary policy on Tuesday, the Reserve Bank of India maintained status quo on policy rates but stressed that it will continue to provide to system liquidity and bring down the liquidity deficit.

In a report on Tuesday, CARE Ratings said it expects a 25 basis points rate cut in the October-December quarter, adding that GDP forecast of 7.8 percent for FY17 and Consumer Price Index inflation of 5-5.5 percent by end of March 2017 also hold.

While RBI said the prospects for future inflation look good, CARE Ratings said that “Inflation needs to be monitored closely.” It added, “While there are signs that the monsoon is good and that food prices should moderate thus bringing down the CPI inflation number, specific crop prospects could affect the number.”

As part of liquidity management, the RBI has also reassured the market that the redemption of FCNR deposits would proceed smoothly. The RBI does not expect market disruption on account of the forthcoming FCNR (B) redemptions (USD26 billion in September 2016) as it has made provisions for the same by way of liquidity provision to banks through OMOs and forward dollar purchases.