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Stating that the country will outperform emerging market peers in the current volatile environment, German brokerage Deutsche Bank today said it expects RBI to slash key rates by 0.25 per cent in the September 29 review.
"We maintain our view that RBI will most likely cut the policy rate by 0.25 per cent on September 29. Growth-inflation dynamic will continue to remain favourable for RBI to justify a rate cut," it said in a note.
The central bank has cut rates thrice by a cumulative 0.75 per cent this year and with positive inflation data emerging, pressure has been increasing on it to cut lending rates further, which can boost the recovery.
Attributing the recent market turmoil to troubles emanating from China, it said spillover risks from continued volatility in global financial markets or potential disorderly exchange rate movement may delay the RBI's rate cut.
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Reserve Bank Governor Raghuram Rajan has been repeatedly saying that its actions will be data determined, specifically the inflation trajectory staying along a glide path, the monsoon rainfall and US Fed's moves amid expectations of a tightening.
RBI, which has recently received an inflation targeting mandate, is aiming to get inflation under 6 per cent by January 2016 and cool it down further to 4 per cent in the year after.
Following the fall in markets and also depreciation in the rupee earlier this week, Rajan had sought to reassure the markets highlighting strong fundamentals, but also said that households' inflation expectations remain high.
Deutsche Bank also seemed to endorse Rajan, saying, "While India is unlikely to remain completely insulated from adverse global developments, it has the ability to outperform other emerging market peers."
This is possible due to an improvement in the macro fundamentals in the past two years. This makes it easier for the economy to absorb the adverse impact of potential external shocks, it said, citing the improvements in forex kitty, GDP growth, current account and fiscal deficits, and, inflation and real interest rates.
