InvestorQ : What is the RBI likely to do in the monetary policy? Can we expect rate cut in the June policy?
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What is the RBI likely to do in the monetary policy? Can we expect rate cut in the June policy?

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Anu Biswas answered.
1 year ago


As of now there is not much of clarity on what is the stand that the government and the RBI will take on the issue of rate cuts but the markets appears to be believing quite strongly on a rate cut in the June policy. I think the following factors could be the key in deciding whether the RBI will cut the rates or not.

· The fuel inflation and the non-core inflation have come down in the last few months. However, the food inflation has gone up in the last few months and that has been consistent. Whether the RBI wants to cut rates right away or wait for the monsoons and cut rates after that remains to be seen.

· Monsoons could be another related variable that the RBI will want to watch. The IMD has predicted average rainfall but the private sector, SKYMET, has projected weak rainfall in June. If the sowing season is weak and the overall output is impacted, then inflation could remain high and RBI may not have a case for a rate cut.

· However, there is a growth case for the RBI to cut rates. The GDP growth came in at just 5.8% in the fourth quarter and 6.8% for the full year and that is worse than the demonetization quarter. That could be a reason for the RBI to consider a rate cut to give growth and industrial output a push.

· Global bonds yields have been falling with the US bond yields falling closer to 2.12% in the previous week. That means the gap between the US yield and the Indian yield on the 10 year bond is as high as 5% and that could give enough room for the RBI to cut rates by 25 to 50 basis points and still maintain attractiveness of Indian bonds for the FPIs.

· Lastly, the global slowdown could be a key consideration. The inverse US yield curve is pointing towards the likelihood of an economic slowdown resulting in a possible recession. In such situations, there is normally a risk-off trade that plays out which is a rush of money into safe havens like the US and Germany. RBI may believe that in the event of a slowdown, FPI flows may not pick up even if rates are cut.

A lot would depend on what is the path that the new government takes on. For example, if the government wants to focus more on liquidity and fiscal policy, then rate cuts may not really be the focus. Also, the government and the RBI are not too happy that when the RBI cut rates by 25 bps on two occasions in Feb and April, there was hardly any transmission to borrowers. The June policy could be interestingly poised where the stance of the policy may be more relevant than whether the rates are cut or not.


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K V RAO answered.
1 year ago


Monetary policy creates momentum for bank stocks. The momentum fizzles out within a few days. This momentum is good only for traders and not for investors. Further check if today's (Tuesday) cloding price has already built rate change news. If that be so, bank stocks may not see uptrend.


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Purvesh answered.
1 year ago


Yes, there are great chances of the rate cut. Please go for Banking stocks on Thursday such as SBI, BOB & HDFC Bank.


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Deep Shah answered.
5 months ago


Yes.....Rate cut of 0.5 is expected


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3 months ago


The Reserve Bank of India (RBI) is likely to cut interest rates one more time in June before rising inflation pressures and elevated fiscal deficits leave little room for further accommodation in rest of the year, IHS Markit said Wednesday. RBI had cut interest rate by 25 basis points each in February and April to boost economic growth. In a report on the forecast for global monetary policy actions and resulting economic impact, the London-based global information provider said RBI is likely to tighten its monetary policy stance in early-to-mid 2020. "With both domestic and global growth slowing and inflation in India remaining below the RBI's inflation target, it is now increasingly likely the RBI will proceed with another rate cut in June. "Beyond June, intensifying inflation pressures and elevated fiscal deficits will leave little room for further accommodation, and we expect no additional rate cuts in 2019 with the monetary policy likely to switch to tightening in early-to-mid-2020


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pankaj warkade answered.
3 months ago


If the good profit on government then  cut taxes


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Pawan Kumar answered.
3 months ago


The Reserve Bank of India (RBI) is likely to cut interest rates one more time in June before rising inflation pressures and elevated fiscal deficits leave little room for further accommodation in rest of the year, IHS Markit said Wednesday.
RBI had cut interest rate by 25 basis points each in February and April to boost economic growth.
In a report on the forecast for global monetary policy actions and resulting economic impact, the London-based global information provider said.