The Reserve Bank of India is predicted to cut the main lending rate only once in the next 18 months. As per a recent poll, RBI rate cut will happen despite the weak inflation and a slowdown in the economy.
The weakening inflation as well as a concern that the China led global economy slowdown has impacted the third largest economy in Asia. This has pushed the Indian central bank to trim the repo rate to the lowest in 4.5 years taking it to 6.75 percent in September. This move by the RBI took many by surprise.
However, the RBI is unlikely to make this move again soon as per a poll conducted over 25 economists in the last week. The next cut of around 25 basis points will not take place until the second quarter of the next year ending June 2016.
The RBI’s rate cut that tool place in September reflected the comfort with the trail of inflation in the subsequent 12 months to 15 months time period. It realizes its need to support the challenging economy backdrop, stated Deutsche Bank economists.
The RBI Governor, Raghuram Rajan stated that the bank chose to the front load policy in order to ease the widespread concerns related to the growth worldwide as well as in India.
The economists predict that the growth this fiscal and in the next will be slower at 7.5 percent than what was predicted three months back that is 7.8 percent. However, this is will be faster than the growth in China that will be 6.5 percent in 2016.
As per a poll that was held in July, a 7.6 percent expansion will take place this year and the same will be 8.2 percent in the next year. These forecasts were made before the release of the economic growth’s slowdown to 7 percent in the second quarter of this year ending June 2015.
Despite the slowdown, the economy in India is quite favorable for the global investors. The inflation might accelerate and the poll showed that it will limit the RBI’s scope in easing the policy as it did in 2015 aggressively cutting the repo rate by four times.