With the monetary policy on 05 December, what do you expect a rate cut or no rate cut this time?

The 3 day meeting of the Monetary Policy Committee (MPC) begins on 03 December and will culminate in the monetary policy statement on 05 December. Here is why you can safely expect 25 bps rate cut and a dovish view on rates.

· The GDP growth for the September quarter has fallen to 4.5% from 5% in June. This is a clear case of slowdown in growth and needs a boost in the form of a rate cut.

· The two factors that were highlighted in the GDP note is that the private final consumption expenditure (PFCE) and the gross capital formation (GCF) fell sharply in September quarter, with the GCF falling into negative territory. That is also a strong case for a rate cut.

· The IIP and the core sector growth has been going deeper into negative territory in the last two months and that also calls for support from the RBI in the form of rate cuts.

· While the data is quite worrisome, the RBI may look to restrict its rate cut to 25 bps and give a dovish view, rather than try to cut the rates by more than 25 bps.

Indian rates are currently close to their 2003 lows and there may not be too much room to cut rates further. Hence the government may look to combine fiscal and monetary measures simultaneously to give a boost to the economy.