RBI may slash repo rate by 0.25%: Nomura

Global financial services firm Nomura Tuesday said it expects 0.25 percent cut in short term lending rate by the Reserve Bank in its upcoming monetary policy review on June 18.

"We now expect a 25 basis points repo rate cut on June 18 due to weaker-than-expected real GDP growth of 5.3 percent in Q1 2012, belying our and the Reserve Bank of India's (RBI's) view that growth had bottomed in Q4," Nomura said.

Yesterday, Reserve Bank Deputy Governor Subir Gokarn had said below trend growth and falling crude oil prices offer the central bank a window to ease policy stance.

"(For one,) the growth is somewhat lower than expectations and that may have positive, moderating impact on core inflation. Two, oil prices have come off somewhat more than expected. Those are the two factors that suggest more room (for monetary policy)," he had said in Mumbai.

In its annual credit policy for 2012-13 on April 17, the RBI had slashed short-term lending rate or repo rate by 0.50 percent to 8 percent to prop up the economy.

Core WPI (non-food manufactured) inflation has continued to moderate, which suggests that pricing power has declined. There is likelihood of further moderation in core inflation in May, it said.

Further, Nomura noted that the brent crude oil prices have fallen to around USD 100 per barrel, more than offsetting the drag from rupee depreciation.

"We do not expect a cash reserve ratio (CRR) cut on June 18 as liquidity is closer to RBI's comfort zone and open market operations can be used to address the liquidity mismatch," Nomura said.

Moreover, the CRR at 4.75 percent is close to the all-time low of 4.50 percent and needs to be kept ready as an emergency buffer to inject liquidity if conditions worsen, it said. 
PTI