RBI may cut policy rate by 25 bps on Sep 29: Report

With inflation figures continuing to reflect benign environment, the RBI is likely to go for a 25 basis points rate cut while announcing its bimonthly monetary policy on September 29, a report said on Monday. The data on Wholesale Price Index (negative 4.9 percent) and Consumer Price Index (3.66 percent) continue to reflect a benign inflationary environment, said ratings and research firm Ind-Ra. While it expects the impact of base effect to reflect in higher inflation numbers for next month, they should remain within the Reserve Bank's guided path of CPI of 6 per cent by the year end.

"With real interest rates remaining high and a gradual growth trajectory, Ind-Ra expects the regulator to cut the policy rates by 25 bps (25 basis points or 0.25 per cent) to 7 per cent during this month," it said. However, the agency said that uncertainty created by US Federal Reserve's status quo may limit aggressive rate cuts and offer some protection against volatility. Further, it expects rupee to appreciate during the week as a run up to the monetary policy announcement on September 29.

"Key drivers would remain the expectations of a relaxation in foreign institutional investor limits for G-Secs, generalised risk-on in the short term and expectations of a rate cut in the policy," it added. But it said the currency remains vulnerable to a global risk-off situation, global growth and financial market concerns. "Ind-Ra remains cautious on the medium-term outlook of the rupee." Post the US Fed policy announcement last week, it said the focus will now shift to the impact of a slowing global economy and in respect of India, the ability of the domestic markets to pick up the slack.

"With recent trade data re-emphasising the limitations of exports as a growth engine, the focus would be on consumption story along with government's spending on infrastructure." Ind-Ra expects investments by the private corporate sector to remain tepid for the next 12-18 months, given the stretched balance sheets and low capacity utilisation levels, it added. Further Ind-Ra said that it expects improvements in the GDP growth to be gradual during FY16 and FY17.