RBI Likely to Cut Rate by 0.25% on August 9: Bank of America

New Delhi: The Reserve Bank of India is likely to cut key rates by 25 basis points, or 0.25 per cent, in its policy review meeting on August 9, largely owing to benign inflation, low industrial production (IIP) growth and a good monsoon forecast, a report by global financial services major Bank of America Merrill Lynch said.

According to the BofA-ML report, a further easing of 25 bps is likely as CPI (Consumer Price Index) inflation came in at a below expected 4.8 per cent for March, and February IIP grew an anemic 2 per cent.

"We have grown more confident of our call for the RBI to cut policy rates 25 bps on August 9," it said.

Earlier this month, the RBI reduced its policy rate by 0.25 per cent to 6.5 per cent - its lowest level in more than five years. While this was the first rate cut after a gap of six months, the RBI has lowered its rate by 1.5 per cent cumulatively since January 2015.

However, the industry still wants further rate cuts from the RBI to boost investment.

According to the global brokerage firm, CPI should average around 5 per cent in this financial year "barring extraordinaries" like a notional hike in housing price inflation due to the 7th Pay Commission or an arithmetical rise in inflation due to oil price hikes from a low base.

Meanwhile, after three months of contraction February, industrial growth printed an anemic 2 per cent and is yet to show any sustainable recovery.

"We continue to expect the RBI to cut policy rates again on August 9 after March inflation came in at a benign 4.8 per cent today," BofA-ML said, adding, "We expect inflation to average 5 per cent in FY17."

The RBI on April 5 cut the key interest rate by 0.25 per cent and introduced a host of measures to smoothen liquidity supply so that banks can lend to the productive sectors and indicated accommodative stance going ahead.