Reserve Bank of India (RBI) likely to cut repo rate in excess of 25 bps: SBI

Country's largest lender, State Bank of India (SBI) in its montly 'Ecowrap' said that, the Governor Shaktikanta Das led Reserve Bank of India (RBI) is expected to cut the policy repo rate by 35-50 basis points (bps) in the upcoming monetary policy review.

The economic research department of the SBI expects gross domestic product (GDP) growth for Q4 (January-March) FY19 at 6.1 per cent. The report also says that the Gross value added (GVA) growth could be at six per cent, or slip marginally below 6 per cent at 5.9 per cent. 

“ We still believe the current slowdown could be transitory, if proper policies are adopted in interregnum. For example, the current high real interest rates are severely acting as an impediment to investment,'' Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI.

He further added, “We are thus penciling a larger rate cut (in excess of 25 bps) by RBI in the forthcoming policy.''

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The report also said that RBI, for the first time, could use the rate change in non-multiples of 25 bps as a first step towards providing second-generation signals to the market of future policy stance. However, even such larger rate-cuts will not help fully, but its transmission will.

To this end, the RBI should now ensure that asset and liability sides of banks move in tandem and ensure repo rate is directly benchmarked to external benchmark/non-volatile bank liabilities/current account, savings account (CASA) that are mostly used for transaction purposes, report added further.

The report said, the financial system would continue to be constrained by lack of transmission, even as the RBI continues to cut rates.