RBI to continue with easing; next cut in Feb: Analysts

A day after the monetary policy committee (MPC) debuted with a surprise 0.25 per cent cut in rates, analysts today said the Reserve Bank will continue with the accommodative stance but the next action can come only in the February review.

In a note, domestic rating agency Icra said it expects the rate easing cycle to continue.

"With the indication that real interest rates (the differential between the key lending rate and inflation) may need to be lower than 1.50 per cent given prevailing global scenario of negative rates, further easing by the Monetary Policy Committee (MPC) can't be ruled out," its senior vice president Karthik Srinivasan said, adding that he is uncertain over the timing.
 

Economists at foreign brokerage Bank of America Merill Lynch said however that it doesn't expect any rate cut in the upcoming review of the bi-monthly policy in December.

"We expect a final 0.25 per cent cut on February 7," it said in a note.

Concurring with this view, Singaporean brokerage DBS also said the next rate cut can happen only in the first quarter of 2017 and not at the next policy review.

Newly appointed Governor Urjit Patel had a conference call with analysts after the announcement of the policy yesterday in which the media was not allowed.

DBS also attributed the cut to the change in the real rates framework.

Even though the policy document did not have a formal guidance, DBS added, the stance indicates lower inflation print continuing into the December quarter.

All the brokerages and analysts said that having committed to keeping the liquidity deficit at neutral, the RBI will continue its liquidity injection through the open market operations or buyback of G-Secs.

DBS said there can be Open Market Operations of up to Rs 70,000 crore over the already done Rs 1.1 lakh crore in the remainder of the fiscal till March 2017, while BofAML put the figure at Rs 90,000 crore by March.

Icra said the OMOs will be between Rs 50,000-60,000 crore till December alone.

In a surprise move, the Patel-led MPC cut its key lending rates by 0.25 per cent to 6-year low of 6.25 per cent on ebbing inflation and to push the growth.