The Reserve Bank will reduce its key policy rates twice this year as it accommodates the concerns about growth amid the cooling price situation, says a brokerage report. The monetary authority will cut the key policy rates at the forthcoming policy review in April, and effect another reduction in either June or August depending on monsoons, Bank of America Merrill Lynch (BofA-ML) said in a report Tuesday.

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The RBI surprisingly cut its key lending rate by 0.25 percent to 6.25 as it sought to up the sagging growth amid slowdown in inflation at its February 7 policy. The analysts at the Wall Street brokerage pointed to governor Shaktikanta Das' vote for a rate cut and the justification given for its expectation of two more rate cuts.

"As per the monetary policy committee minutes, Das said 'the time is opportune to seize the initiative and create a congenial environment for growth'," it said. It said inflation will come in at 4.7 percent in FY20, though more than the 3.5 percent in FY19 but well within the target range of 2-6 percent mandated for RBI.

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With concerns voiced on the core inflation, or the price rise excluding food and fuel, the brokerage said there is no generalisation there, saying "idiosyncratic factors" are pushing up rural healthcare and education costs. The report said the risks on the inflationary impact of the fiscal policies, especially after the populist moves in the budget, are "overdone", pointing out to the finance ministry asserting to get the fiscal deficit at 3.4 percent.

The brokerage also said high real rates, which is the difference between the policy rate and inflation, also support for a 0.50 percent cut in the policy rates.