Rate Easing in Line With Projections; One Final 25 bps Cut Still Possible

Rate Easing in Line With Projections; One Final 25 bps Cut Still Possible

By – Mr. Vikram Chhabra, Senior Economist, 360 ONE Asset

The RBI’s decision to cut the repo rate by 25 bps is broadly in line with our expectations. Inflation has consistently printed below the RBI’s projections, indicating that there was adequate room for policy easing. Although GDP growth has been higher than the RBI’s forecasts, it is expected to moderate to 6.5-7 per cent in the coming quarters. This still leaves room for pursuing a higher and, as the Governor has previously described, more aspirational growth trajectory.

That said, we believe the rate-cut cycle is now nearing its end. If the growth and inflation dynamics remain supportive, there may still be room for one more 25 bps cut in this cycle, but that would likely mark the end of this cycle. In addition, we expect the RBI to maintain a comfortable liquidity surplus to ensure swift transmission to the deposit and credit markets, and to deploy further OMO purchase auctions or FX swaps if required.