The Reserve Bank of India (RBI) may cut repo rate by 25 basis points (bps) in its August 7 policy meet and further reduce it by 50 to 75 bps to achieve the level of less than or equal to 5 per cent by March 2020, according to State Bank of India's research report 'Ecowrap.'
Banks will cut deposit rates further and lending rates will witness a faster incremental fall in coming months. This could aid recovery but it is unlikely before late Q3 FY20, it said.
"A delayed festive season this fiscal is not going to help either. In our sense, a sector-specific policy intervention is now a must. Finally, we must find a genuine solution to the long delays at National Company Law Tribunals," said Soumya Kanti Ghosh, Group Chief Economic Adviser at SBI.
The report expects GDP growth to fall to 5.6 per cent in Q1 FY20 from 5.8 per cent in Q4 of FY19.
"Market sentiments are also weak with Rs 15 lakh crore decline in market capitalisation since July. Corporate advances across banks show a muted to negative growth. Retail advances remain positive, though a persistent demand slowdown is already pulling back things (as clearly evident in June)," said Ghosh.
Rainfall, though has picked-up significant pace, its spatial distribution is a matter of serious concern with cereal, potato, onion and oilseed growing states bearing the brunt. However there is now a nascent consensus building-up that recent surge in rainfall might give a facelift to rural demand, said Ghosh.
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