The Reserve Bank of India is expected to go for a 25 basis points rate cut on or before its scheduled policy review meet on April 5, says a Bank of America Merrill Lynch (BofA-ML) report.
"RBI needed to inject about USD 30 billion in FY17 to fund 5.5 percent growth (in the old GDP series)," BofA-ML said in a research report adding that "on balance, we expect Governor Rajan to cut rates by 25 bps by April 5".
According to the global financial services major, the RBI is expected to buy another Rs 20,000 crore by way of open market operations (OMO) this month to boost liquidity.
"We expect RBI governor Rajan to OMO/buyback another Rs 20,000 crore in March, atop the Rs 1,08,500 crore since December, inclusive of the Rs 15,000 crore OMO announced for March 10," BofA-ML said in a research report.
On March 4, the Reserve Bank said it will buy government securities via open market operations on March 10 to infuse liquidity of Rs 15,000 crore into the system.
RBI Governor Raghuram Rajan on February 2 left the key interest rate unchanged citing inflation risks and growth concerns, while pegging further easing of monetary policy to the government's Budget proposals.
OMOs are market operations conducted by RBI by way of sale/purchase of government securities to/from the market with an objective to adjust the rupee liquidity conditions in the market on a durable basis.
If there is excess liquidity, RBI resorts to sale of securities and sucks out the rupee liquidity. Similarly, when the liquidity conditions are tight, the RBI buys securities from the market, thereby releasing liquidity into the market.
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