With concerns on inflation ebbing and industrial production contracting in October, Bank of America Merrill Lynch (BofA-ML) today said it expects RBI to cut key policy rates by 0.25 per cent in February and 0.75 per cent in whole of 2015.
The RBI had kept its key rates unchanged in the December 2 policy. The repo rate and the cash reverse ratio were retained at 8 per cent and 4 per cent, respectively.
"We have grown more confident of our standing call for a 25 bps repo rate cut on February 3 after November non-food CPI inflation dropped to 5.1 per cent, far below the long-run average of 7.2 per cent since 1997, and the wholesale price index hit 0 per cent," the foreign brokerage firm said in a statement here.
The US brokerage added it expects inflation to be in line with RBI's estimates of 6 per cent in January 2016.
With the industrial production contracting 4.2 per cent in October, BofA-ML said the RBI might be tempted to cut the lending rate to ensure recovery in the manufacturing sector.
"Industrial production contracted in October. While this partly reflected data bunching issues, it also reinforces our view that recovery will need lending rate cuts. September quarter GDP growth slowed to 5.3 per cent from June quarter's 5.7 per cent despite better-than-expected agricultural growth," it said.
With the oil prices currently trending below USD 65/bbl, the brokerage said the softer oil rates would ensure a 0.75 per cent rate cut in 2015.
