The Reserve Bank is likely to cut rates by 0.25 per cent in February’s monetary policy review as its target of six per cent inflation by January 2016 is likely to be met, Bank of America Merrill Lynch has said.
“In our view, inflation is well set to achieve RBI’s eight per cent January 2015 and six per cent January 2016 CPI inflation targets. We continue to expect Governor Raghuram Rajan to cut rates by 25 basis points on February 3,” the investment banking major said in a note.
Expecting January Consumer Price Index (CPI) based inflation at 6.2 per cent, it said there will be a greater visibility of close-to-normal winter wheat crop, adding that sowing is picking up after a delayed start due to late rains.
On rupee, it said RBI may continue to be defensive at a level of Rs 62-63 per dollar.
“We continue to expect the RBI to continue to mount a token defence at Rs 62-63 per dollar levels, selling $500 million-1 billion, as it is doing. It is only at Rs 65 per dollar that we see full-scale forex intervention of $15 billion.
“The RBI should ideally want to hold Rajan’s preferred Rs 60-62/dollar zone. At the same time, it will not spend too much of precious forex at a time the INR has outperformed most BRICS currencies,” it added.