RBI likely to cut key rates by 25 basis points on August 9: BofA-ML

The Reserve Bank of India (RBI) is likely to cut key rates by 25 basis points (bps) (0.25%) in its policy review meeting on August 9, largely owing to benign inflation, low index of industrial production (IIP) growth and good monsoon forecast, a report says.

According to the global financial services major Bank of America Merrill Lynch (BofA-ML), a further easing of 25 bps is likely as consumer price index (CPI) inflation came in at a below-expected 4.8% for March, and February IIP grew an anemic 2%.

"We have grown more confident of our call for the RBI to cut policy rates 25 bps on August 9," it said in a research note.

Earlier this month, RBI reduced its policy rate by 0.25% to 6.5% -- its lowest level in more than five years. While this was the first rate cut after a gap of six months, RBI has lowered its rate by 1.5% cumulatively since January 2015.

However, the industry still wants further rate cuts from RBI to boost investment.

According to the global brokerage firm, CPI should average around 5% in this financial year barring extraordinaries like a notional hike in housing price inflation due to the 7th Pay Commission or an arithmetical rise in inflation due to oil price hikes from a low base.

Meanwhile, after three months of contraction February industrial growth printed an anemic 2% and is yet to show any sustainable recovery.

"We continue to expect the RBI to cut policy rates again on August 9 after March inflation came in at a benign 4.8% today," BofA-ML said adding that "we expect inflation to average 5% in FY17".

The RBI on April 5 cut the key interest rate by 0.25% and introduced a host of measures to smoothen liquidity supply so that banks can lend to the productive sectors and indicated accommodative stance going ahead.