Mumbai: In spite of the Reserve Bank on Tuesday sounding hawkish about more rate cuts, most analysts and economists at rating agencies and investment banks expect another 25-75 bps easing through the course of the year. (Agencies)
Stating that the room for further rate cuts is limited, Crisil said, "With CPI inflation remaining high and WPI inflation still above RBI's threshold of 5 percent, we expect RBI to reduce policy rates by at most 25-50 bps next fiscal."
But it warned that banks are unlikely to lower lending rates immediately as deposit growth is weak and the cost of borrowings remains high.
However, it doubted 25 bps repo cut oiling the "squeaky wheel" of the economy saying "lower interest rates can effectively oil the economy only when other major causes for the squeaking wheel are fixed. This involves sorting out issues such as delays in land acquisition, forest and environmental clearances, and supply of raw materials that continue to drag down implementation of projects."
Kotak Bank's Indranil Pan also said despite the hawkish tone in the policy statement, he still sees a 25 bps cut in the repo rate on May 3.
Describing the tone of the policy statement as mixed, Deutsch Bank, too, said there are at least two more cuts (25 bps each) by May 3 and mid-June, but after that the cycle may well come to an end unless the growth-inflation nexus turns out to be poorer.
"We see Tuesday's guidance as a hedge against expectations of further cuts, but we think ultimately the need to support growth and asset markets would prevail, and further easing lies ahead," it said.
Credit Suisse director Prior-Wandesforde also said despite worrying guidance "we continue to look for another 75 bps repo rate cuts in the year as they feel that food inflation is likely to come off in due course and so is the external deficit which has already begun to turn the corner".
Mumbai: In spite of the Reserve Bank on Tuesday sounding hawkish about more rate cuts, most analysts and economists at rating agencies and investment banks expect another 25-75 bps easing through the course of the year.