Following the inflation in the Consumer Price Index (CPI) that increased well over the RBI comfort of 4%, a further rate cut is highly possible. Despite a cumulative 135 basis point that has been cut down, the inflation in India is demanding further rate reduction by RBI.
Consumer Price Index effect on RBI
This year CPI reached a 16-month high at 4.6%. This was due to the high food rates particularly the onion price hike. On the contrary, a dip of 2.2% observed in the period November 2018 and on February 2019. Estimating the average, the base effect will be 3.5% well within the RBI’s inflation directive. The cited inflation facts have led to the reserve bank of India dwelling the rate cuts by the Monetary Policy Committee. Further, plan on maintaining the same rate until inflation moderates.
A Different Scenario Predicted by BofAML
Despite the halt considered by the central administration, Bank of America Merrill Lynch (BofAML) has a different perception. It depicts a 40-basis point (bps) cut by RBI in the Fiscal Year 2020. Additionally, it predicted a 25 bps in December followed by 15 bps in February. The investment bank emphasized that this would support growth in its report.
The report also noted the CRR rate cut during the 1988-2004 drought placed India at the top of global restoration. Moreover, the report predicted the inflation to last another quarter and similarly dropping the growth to 5.5% in 2020.
Impact on the Market
Head of Fundamentals Research at Kotak securities, Rusmik Oza added that the devaluation of the Rupee will hit the equity rather than the inflation. He further predicted that the consecutive year will prove beneficial in terms of the equity market and advises the investors to use the opportunity. Likewise, Amit Gupta, CEO, and Co-Founder of Trading Bells suggested that Nifty traders will remain above 11,700.