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RBI expected to cut rates just once in next 18 Months

The Reserve Bank of India (RBI) is forecast to cut its main lending rate just once more over the next 18 months, despite weak inflation and a slowing economy.

Weakening inflation and concern that a China-led global slowdown was weighing on Asia’s third-largest economy pushed India’s central bank to cut the repo rate to a 4 1/2-year low of 6.75 per cent last month, taking many by surprise.

But the RBI is unlikely to move again anytime soon, according to the poll of over 25 economists taken in the past week, and the next cut of 25 basis points won’t come until the April-June 2016 quarter.

September’s cut reflected the RBI’s “comfort with the path of inflation in the next 12-15 months, while recognizing the need to support the economy in an increasingly challenging global backdrop,” wrote economists at Deutsche Bank.

In his statement after the policy meeting, Governor Raghuram Rajan said the Bank chose to front-load policy easing due to widespread concerns about growth worldwide and in India.

However, economists predict growth this fiscal year and next will be slower than estimated three months ago, just 7.5 per cent and 7.8 per cent respectively, although faster than China’s, where growth will be 6.5 per cent in 2016.

A July poll predicted a 7.6 per cent expansion this year and 8.2 per cent next, but those forecasts came before official data showed economic growth slowed to 7 per cent in the quarter ending in June. New Delhi is targeting 8 percent over the next two years.

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