As concerns on inflation front ebb, Reserve Bank Governor Raghuram Rajan will adopt a dovish stance in the December policy review meet and cut rates in February, Bank of America Merrill Lynch said on Monday.
"We expect Governor Rajan to sound more dovish in December and cut rate in February. After all, we see CPI inflation well set to meet the RBI's targets of 8 per cent in January 2015 and 6 per cent in January 2016 (with normal monsoon rains)," the top foreign brokerage said in a note.
Rajan had overturned the majority opinion of the members in RBI's Technical Advisory Committee and chose to hold the rates at the last monetary policy review in October, according to minutes of the meeting.
BofA-ML said Rajan may not go in for a rate cut at the December 2 review as it wants to make sure the inflation is ‘truly coming off’, especially given the fact high rates result in some sacrifice on the growth front.
Before the September 30 policy review, wherein he left the rates unchanged, Rajan had told a banking summit what was the point in cutting interest rates at the first instance of a cooling off in inflation only to be increased again to fight price rise.
In the note, the US brokerage said India's GDP growth will slip below 5 per cent in the September quarter as against the handsome 5.7 per cent print in the April-June period of the current fiscal.
Rajan will opt for the cut at the February monetary policy review, once the 8 per cent inflation target is met and also after indications on the rabi (winter crop) output are received, BofA-ML said.
The rabi crop is expected to be good as the late rains have helped and the same is visible in the higher sown area, the brokerage said, adding this will help cool food prices.
Inflation measured by consumer prices has been trending down for over four months, and came in at 6.7 per cent in September, much below the RBI's targets.
The recent cuts in the petrol and diesel prices will also help cool inflation, the brokerage said.
Image: RBI Governor Raghuram Rajan; Photograph: Reuters
