 "Street hopes for one more rate cut in '13")
The Street is expecting further repo rate cuts by the Reserve Bank of India (RBI), despite the monetary policy guidance given by the central bank today that “the headroom for further monetary easing remains quite limited”.
In calendar year 2013, most economists expect at least one more repo rate cut of 25 basis points, which will bring down the rate to 7.25 per cent.
RBI has cut the repo rate by 25 basis points in the mid-quarter review of the monetary policy today. This was the second repo rate cut by RBI in 2013. In the third-quarter review on January 29, the central bank had cut the rate by 25 basis points.
However, some economists said they believe there is only one more rate cut in the offing, as headline inflation to remain range-bound around current levels in 2013-14.
“While the room for further monetary policy easing has essentially been exhausted for now, in our view, RBI is still likely to cut rates a bit further, and we have maintained our call for another 25 basis points rate cut during the April-June quarter. However, this may well be the end of the easing cycle,” said Leif Eskesen, chief economist for India and Asean, HSBC.
The guidance given by RBI dampened bond market sentiments. The yield on the 10-year benchmark government bond 8.15 per cent 2022 rose today and ended at 7.90 per cent, compared with previous close of 7.88 per cent. During intra-day trades, it had touched a high of 7.93 per cent.
Some experts also see the possibility of no more rate cuts in 2013. “We continue to expect no more cuts in 2013. The hawkish statement by RBI corroborates our view and we think that market expectations of more than 50 basis points of rate cuts in 2013 from here will gradually come down,” said Tushar Poddar, managing director and chief India economist, Goldman Sachs. According to Poddar, upside risks to inflation and an elevated current account deficit in the near term will make it extremely difficult for RBI to justify easing policy rates.
In calendar year 2013, most economists expect at least one more repo rate cut of 25 basis points, which will bring down the rate to 7.25 per cent.
RBI has cut the repo rate by 25 basis points in the mid-quarter review of the monetary policy today. This was the second repo rate cut by RBI in 2013. In the third-quarter review on January 29, the central bank had cut the rate by 25 basis points.
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“We think there are at least two more cuts (25 basis points each) ahead but after that the cycle may well come to an end, unless the growth-inflation nexus turns out to be poorer. We see the fiscal and inflation path in the coming months conducive toward rate cuts in early-May and mid-June,” said Taimur Baig and Kaushik Das of Deutsche Bank. According to Baig and Das, Today’s guidance by RBI is a hedge against expectations of further cuts. “We think, ultimately, the need to support growth and asset markets would prevail and further easing lies ahead,” they said.
However, some economists said they believe there is only one more rate cut in the offing, as headline inflation to remain range-bound around current levels in 2013-14.
“While the room for further monetary policy easing has essentially been exhausted for now, in our view, RBI is still likely to cut rates a bit further, and we have maintained our call for another 25 basis points rate cut during the April-June quarter. However, this may well be the end of the easing cycle,” said Leif Eskesen, chief economist for India and Asean, HSBC.
The guidance given by RBI dampened bond market sentiments. The yield on the 10-year benchmark government bond 8.15 per cent 2022 rose today and ended at 7.90 per cent, compared with previous close of 7.88 per cent. During intra-day trades, it had touched a high of 7.93 per cent.
Some experts also see the possibility of no more rate cuts in 2013. “We continue to expect no more cuts in 2013. The hawkish statement by RBI corroborates our view and we think that market expectations of more than 50 basis points of rate cuts in 2013 from here will gradually come down,” said Tushar Poddar, managing director and chief India economist, Goldman Sachs. According to Poddar, upside risks to inflation and an elevated current account deficit in the near term will make it extremely difficult for RBI to justify easing policy rates.