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DBS Bank Expects RBI to Lower Repo Rate by 25 bps

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Published on : Sep 28, 2015

DBS bank, the Singapore-based giant lender, has stated that it expects the Reserve Bank of India (RBI) to decrease the repo rate by 25 bps to 7% and the fixed corridor to lower the reverse repo to 6%. The bank further said that this will be the fourth rate cut in 2015, after a collective cut of 75 bps during the period of January 2015 to June 2015.

Initially, the policy outlook for the latter half of the year 2015 want clear. The rate directions from the U.S. Federal Reserve, the market volatility led by the Yuan, and consequences of a weak monsoon had clouded over the situation. But, the risks on these counts are now receding are likely to encourage the RBI to decrease the rates this week. The commodity prices in India have also eased as of now with the CRB index declining 1.5% since August, 2015.

Inflationary expectations are expected to ease by September, 2015, echoing the ease up in the global commodities market. The CPI inflation declined to 3.7% in July and August, 2015 from a high of 7% on a Y-o-Y basis in 2014.

The RBI stressed in its August, 2015 review that it would look through the ‘base effect distorted’ readings of inflation in July and August 2015 but the ‘slower than anticipated’ consecutive pace has taken it to surprise. Moreover, RBI’s estimates suggested that the effect of below-normal monsoon will last for not more than 3-4 months, which meant that inflation will likely be staying in a range of 5.0-5.5% till December 2015.

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