Is there a room for another rate cut by RBI? Here's what global brokerages are saying

A 25 basis point (100 bps=1 percentage point) rate cut by Reserve Bank of India (RBI) on October 4 was on expected lines and most global brokerages feel another 25 bps rate cut is possible in December.

The Street was disappointed after the rate cut as it fell short of expectations of a 35-40 bps cut. However, global brokerages said the dovish tone of the central bank has kept the room open for further easing.

Also, RBI's revision of real GDP growth for FY20 downwards to 6.1 percent from 6.9 percent in the August policy and upward revision in CPI inflation projection slightly upwards to 3.4 percent for Q2 FY20 from 3.1 percent earlier spooked investors.

Let's take a look at the views of top global brokerages on the RBI rate cut:

Goldman Sachs sees a high probability for the Monetary Policy Committee (MPC) delivering a final 25 bps cut in December and expects the easing cycle to pause after that. "We do not see space for further rate cuts beyond Q4," it said.

Citi feels the rate cut was in line with expectations and that the RBI provided strong forward guidance for further rate cuts to support growth. "Hope of recovery has been kept alive with FY21 growth at seven percent as the inflation forecasts have been kept broadly unchanged. Another rate cut of 25 bps is likely in December policy," Citi said.

Credit Suisse feels the rate cuts are not being front-loaded as FY20 growth target has been cut to 6.1 percent. "The MPC may be trying to signal to the bond market that rate cuts may keep coming," it stated.

Morgan Stanley, too, expects one more rate cut in December as the dovish tone of the central bank has kept room open for further easing. However, the foreign firm said the risk of further easing will depend on the pace of recovery in growth.

In line with the views of most global financial firms, HSBC also expects another 25 bps rate cut in December, taking the repo rate to 4.9 percent.

Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol advises users to check with certified experts before taking any investment decisions.