Citigroup expects the Reserve Bank to further reduce the benchmark short-term lending (repo) rate or mandatory deposit that banks keep with the central bank by over 100 basis points to infuse liquidity.
"We expect a 100-plus basis points easing on CRR/repo rate in the near term," the Citigroup said in its India Market Watch report.
RBI recently reduced the CRR by 250 basis points to 650 points, thus unlocking about Rs 1 lakh cr, and it also cut the repo rate by one per cent, signalling a soft interest rate regime.
However, the report said, the central bank made no key changes in the monetary policy last week and kept all the key policy rates unchanged.
Commenting on the government's decision to increase public expenditure through supplementary demands for grants, the report said, "While financing details of the net cash outgo of Rs 1.05 lakh crore are still not available, a significant portion of this could be via additional borrowing."
It further said that government was not likely to get additional revenue through auction of 3G spectrum. "...The Department of Telecommunications is contemplating postponing the 3G spectrum auction by three months in view of the global liquidity crunch," the report added.
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According to the report, Rupee is expected to remain in 50/dollar range until risk levels in forex market subsides.
"In the longer term, we do expect Rupee to strengthen, but timing the reversal is difficult and would depend on normalisation of risk appetite and continuation of lower oil prices," the Citi report said.