The Reserve Bank of India (RBI) governor Raghuram Rajan is likely to announce a cut in key policy rates at the upcoming bi-monthly meeting on 29 September amid falling inflation and slowdown in the economy, according to a poll.
A Reuters poll showed 45 of 51 economists expect the central bank to cut repo rate by 25bps to 7%. The RBI had already reduced the rates three times so far this year.
In the previous month, the survey showed 60% probability for such move.
"A 25bp cut in the repo rate is our baseline expectation for next week. We believe disinflation in India had been materially stronger than expected recently, which has created room for further monetary easing," said Barclays Capital in a note.
The retail inflation fell to a record low of 3.66% in August and the country's gross domestic product (GDP) slowed to 7% in the first quarter of the current fiscal year.
The wholesale price inflation (WPI) declined further to minus 4.9% in August, reaching the lowest level since 2005. The WPI has been in negative territory for the past 10 months.
"Concerns of renewed weakness in the global economy and its effect on commodity prices could offer further cushion to upside pressures to the inflation trajectory in India in the coming months," said Barclays.
In the wake of inflation falling to record lows, some sections in the business community and the government including the Finance Ministry have publicly called for a rate cut, even though the central bank governor Rajan, who is known for his hawkish stance, still wants to see a sustained fall in inflation rates.
"We believe it was the RBI's conscious policy in recent months to err on the side of caution in terms of its communication and manage expectations for further easing. We do not expect the RBI to drop its bias of caution abruptly," said the note.
