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RBI likely to reduce policy rates by 25 bps in August 2018

New Delhi: The Reserve Bank of India (RBI) is likely to reduce the key policy rates by 25 bps in August this year, which will lead to lending rate cuts, and in turn, support growth, according to a report.

"We continue to expect RBI to cut 25 bps in August, if rains are normal, to cool yields and signal lending rate cuts", BofAML said in a research note.

According to global financial services major Bank of America Merrill Lynch (BofAML), risks regarding price rise are overdone and March inflation is likely at 4.2 percent, well within RBI's 2-6 percent mandate.

As per the global brokerage, fundamentals of the country like growth, money supply and monsoon, point to a benign inflation outlook.

"We expect the RBI MPC to look through the jump in inflation to 5.8 percent in June, as it is driven by base effects of last year's 1.5 percent," BofAML said in a research note.

 As per Central Statistics Office (CSO) data, retail inflation measured in term of Consumer Price Index fell to a four-month low of 4.44 percent in February on cheaper food articles and lower cost for fuel. Retail inflation was 5.07 percent in January.

In February 2017, however, it was 3.65 percent. Following the easing of retail inflation in February, there is industry clamour for a rate cut by RBI next month to maintain growth momentum.

The central bank's next monetary policy review is scheduled for April 5. It had kept the policy rate unchanged in its February meeting on fears of inflation. 

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