The Reserve Bank of India (RBI) is expected to go in for a 25 basis points (bps) rate cut at its next monetary policy meet on February 8 -- as also in April -- says a Bank of America Merrill Lynch (BofA-ML) report.

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According to the global financial services major, further easing is likely as demonetisation is hurting growth while inflationary pressure is benign and the government is expected to target a conservative fiscal deficit of 3.5% of gross domestic product (GDP).

"We grow more confident of our call of a 25 basis points RBI rate cut on February 8 (and April) after release of latest CPI/WPI/ IIP data," BofA-ML said in a research note.         

Incoming data show that demonetisation is impeding growth, BofA-ML said, adding that "old series GDP growth is already languishing at 4-4.5%".

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BofA-ML has slashed its March inflation forecast to 4.6% (from 5.1%), which is well below RBI's 5% target and noted that an RBI rate cut will support the rupee by attracting foreign capital flows.

"We continue to expect consumer price index (CPI) inflation to meet RBI's 5% March 2017 target. In fact, we have cut our March 2017 forecast to 4.6% from 5.1%," it added.

Retail inflation eased further to nearly three-year low of 3.41% in December, reflecting weak demand as consumers grappled with cash crunch following demonetisation.

Rising prices of petrol and diesel fuelled wholesale price index (WPI) inflation to 3.39% in December 2016.

On December 7, the central bank kept interest rate unchanged despite calls for lowering it and lowered the economic growth projection by half a percentage point to 7.1% in the first policy review post demonetisation.

The central bank will hold its next monetary policy meet on February 8.

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