The Reserve Bank of India (RBI) today (March 4, 2015) cut the benchmark repo rate by 25 basis points (0.25 percent), from 7.75 percent to 7.5 percent. Reacting to it Dinesh Thakkar, Chairman & Managing Director, Angel Broking, says, "RBI’s latest rate cut of 25 basis points, while a surprise in its timing is in line with our expectations of a sharp rate-cutting cycle over the coming quarters. With inflation sustainably lower by 500bps, the RBI has in recent months acknowledged the scope for rate cuts and was only waiting for additional comfort that the government’s fiscal policy would not play spoil-sport. Having got the comfort in the budget of the government’s commitment to high quality fiscal consolidation, in our view, the RBI is likely to embark on an extended monetary easing cycle, with at least another 50-75bps more of rate cuts in FY2016. This is also aided by the substantial improvement in the current account balance, which has strengthened the INR’s fundamentals. In fact, given the stronger INR and substantial global monetary easing (prominently by ECB & BoJ), the RBI may finally be in a position to narrow the differential in interest rates in India vis-a-vis global interest rates which are still at historic lows, without meaningful risks to exchange rate stability. Hence, in our view, various indicators point to continued substantial decline in interest rates, with the RBI expected to cut the policy rate by at least 50 – 75 basis points cut by March 2016."
Wednesday, March 4, 2015