RBI monetary policy: Will he, won't he? Here's what experts are saying

The Reserve Bank of India is set to announce its sixth bi-monthly monetary policy review on Tuesday.  This will be the last announcement before the upcoming Unnual Budget, which will be presented on February 29.

The RBI has reduced repo rate by 125 basis points in about past one year. In the last monetary policy meet, Rajan had left the key policy rates unchanged. Before, the review, here's what the market and experts expect from the RBI governor Raghuram Rajan:

BofA Merrill Lynch

BofA Merrill Lynch Global Research said it "continues to expect" the RBI to cut the key policy rate by 25 basis points in the February policy review. "We continue to expect a final 25 bps RBI repo rate cut on February 2. That said, the RBI is approaching the end of its rate cutting cycle. The repo rate, at 6.5% then, would be well below the average CPI inflation rate of 7% (using it as proxy for inflation expectations)," it said.

Ficci

The new president of the industry body, Harshavardhan Neotia has pitched for for a cut in interest rates saying that the cost of funds is still high and a further reduction in interest rates would help to propel investments.

Ind-Ra

India Ratings and Research (Ind-Ra) said that amid the challenging corporate environment and limited fiscal space for the government, the RBI's role as a catalyst to boost growth may not be restricted to policy rates but also towards deploying alternative policy tools. In the past,

"Evolving financial market conditions may in fact warrant RBI to assess the viability of OMOs as a tool to harmonise policy stance and effectively transmit monetary policy to the asset markets," it said.

Nomura

With inflation under the central bank's 6% target and oil prices falling, the Reserve Bank is likely to go for a final interest rate cut of 25 basis points in April, financial services major Nomura said.

Nomura said beyond the 25 basis points rate cut in April, the RBI will remain on hold until end of 2016. 

India Inc

With inflation remaining in the negative territory for the 14th straight month in December, India Inc said the trend indicates weak demand, nudging Reserve Bank to cut the benchmark rate to aid industrial recovery and boost economic growth.

"We hope the central bank will respond to the situation appropriately and take steps that would aid the process of industrial recovery. At this juncture, propelling growth and creating jobs should be a priority and all policy levers should be geared towards that objective," Ficci Secretary General A Didar Singh said.

Deutsche Bank

The Reserve Bank of India is expected to cut rates by 25 basis points in its policy review meet in April this year, a Deutsche Bank report said.

"We expect a 25 bps rate cut in April but in case the global economy tips into a recession, thereby delaying India's growth recovery, and if inflation remains along the glide path as projected by the central bank, then room could open up for further rate cuts in the second half of 2016," Deutsche Bank said in a research note.

ICICI Bank

The Reserve Bank is expected to remain accommodative in its monetary policy this year and further rate cuts cannot be ruled out, top banker Chanda Kochhar said, promising a further lowering of lending rates by her ICICI Bank as deposit costs come down.

"Inflation could come under some pressure particularly with the implementation of the Seventh Pay Commission but we expect it to remain within the RBI's comfort levels. We are not ruling out further reduction in policy rates going forward," Kochhar told PTI in an interview.

Assocham

The ASSOCHAM expects the Reserve Bank of India (RBI) to at least take note of the fact for well over a year, the Wholesale Price Index (WPI) for several industrial products has remained in a deflationary mode, requiring an urgent infusion of life-saving consumer demand.

"There are several other items such as leather and leather products and machine tools which are near zero inflation reflecting poor demand and virtually no pricing power left with the manufacturers. It is almost a distress situation," said ASSOCHAM President Sunil Kanoria, seeking a cut in interest rates in the policy Repo by the RBI.

Citigroup

A Citigroup report said that RBI is likely to keep key policy rates unchanged until the budget on February 29, and will go for a 25 bps easing in March/April this year. "As regards timing, we think RBI could ease right after the budget, potentially in March itself. We also note that the banking system will move to a new marginal cost-based lending rate regime from April 1st (for better transmission) which could influence timing as well," the report noted.

HSBC

HSBC said it expects RBI Governor Raghuram Rajan to maintain status quo in the forthcoming policy review and wait for the fiscal roadmap presented in the Budget.

"We do not think RBI will cut rates on February 2," it said in a note.

DBS

India's fiscal deficit target for 2016-17 is likely to be adjusted higher to 3.7% of GDP, financial services major DBS said while highlighting that wider deficits carry the risks of a delay to rating upgrades.

"The Reserve Bank of India meets next on February 2 and we expect the benchmark rates to be kept on hold," said a DBS report.

Above all, RBI governor, Rajan has warned against generating economic growth through additional debt saying that any deviation from the fiscal consolidation path will hurt the stability of the economy.

Rajan said that macroeconomic stability during the global turmoil cannot be risked and the government and RBI should continue to bring down inflation.

(With agencies input)