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Last Updated : Jul 14, 2016 10:37 PM IST | Source: PTI

RBI likely to cut repo rate by 25 bps in August: BofA-ML

Retail inflation measured on Consumer Price Index (CPI) stood at 5.77 percent in June as against 5.76 percent in the previous month and 5.40 percent in June last year.


Reserve Bank is likely to cut the repo rate by 25 basis points next month after retail inflation continued to remain benign in June, a report said today.


"We continue to expect the RBI to cut rates by 25 basis points on August 9 after June CPI inflation came in at a benign 5.8 percent," Bank of America Merrill Lynch (BofA-ML) said in a note, adding this would be the last rate reduction in the year.


Retail inflation measured on Consumer Price Index (CPI) stood at 5.77 percent in June as against 5.76 percent in the previous month and 5.40 percent in June last year.

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It said the compelling reason for an August 9 RBI rate cut is that a good monsoon should douse agflation (agriculture driven inflation) -- a 5 percent change in food prices swings CPI inflation by 250 basis points.


The American brokerage said the repo rate, at 6.5 percent, has already dropped below the medium-term CPI average inflation of 6.9 percent.


"We, of course, will review our RBI rate cut call after the appointment of the new governor and or monetary policy committee (MPC)," it said.


BofA-ML has cut it March CPI inflation forecast to 5.1 percent from 5.7 percent, in line with the RBI's 5 percent target, with rains likely to pull down pulses prices.


Above normal rains should also secure river water for a good rabi crop.


June core CPI inflation softened to 4.8 percent from 5 percent last month with poor growth curtailing pricing power.


"We forecast FY17 growth at 5.6 percent in the old GDP series, well below our estimated potential of 7-7.5 percent," it said.



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First Published on Jul 14, 2016 09:40 pm
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