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RBI monetary policy: What Dalal Street expects from the central bank today

This will be the first monetary policy after the Narendra Modi government started its second term last week. The central bank had cut the short-term lending rate (repo rate) by 25 basis points each in its last two policy reviews.

twitter-logoBusinessToday.In | June 6, 2019 | Updated 11:35 IST
RBI monetary policy: What Dalal Street expects from the central bank today

The Reserve Bank of India will announce its bi-monthly policy today. The apex bank is likely to cut rates for the third time in a row to prop up the economic growth which dropped to a five-year low in the final quarter of 2018-19, according to experts. This will be the first monetary policy after the Narendra Modi government started its second term last week. The central bank had cut the short-term lending rate (repo rate) by 25 basis points each in its last two policy reviews.

The MPC headed by RBI Governor Shaktikanta Das has been deliberating for three days beginning June 3 to firm up the second bi-monthly monetary policy of the fiscal.

Here's a look at what experts on Dalal Street expect from the RBI policy announcement today.

Naveen Kulkarni, Head of Research at Reliance Securities said, "While we expect a 25 basis point rate cut from the Reserve Bank of India's (RBI) June 2019 policy meeting, we will be looking forward to the RBI's commentary on the gross domestic product (GDP) for FY20. Given that the numbers for Q4FY19 and FY19 as a whole were weak, the forecast for FY20 will assume importance. We are yet to have concrete answers as to how the global developments could affect domestic markets, therefore the central bank's vision holds importance."

RBI's MPC meet today; market expects 25-basis point cut in key rates

Jason Monteiro, assistant vice-president, Mutual Funds Research & Content at Prabhudas Lilladher said," Bond yields have already priced in a rate cut expectation, given the subdued GDP growth of 5.8% in the March Quarter. The 10-year benchmark G-sec yield has eased by over 40 bps from 7.41% as on May 10 to 6.98% on June 3. Investors in long duration bonds would have benefitted the most over the past year, as yields have fallen substantially from over 8% in September 2018."

Garima Kapoor, economist at Elara Capital  said, "Weak growth amid benign CPI inflation is expected to create room for the Monetary Policy Committee to cut the repo rate by 50-75 bps through FY20E, beginning in June 2019. CPI is expected to average 3.8-4.0% in FY20E. Less supportive global landscape amid trade wars and disruption of global supply chain would keep the INR under pressure. We expect the USD-INR rate to trade in the range of 69-70 amid strength in the Dollar Index, owing to risk-off sentiment in the global economy."

"What RBI (Reserve Bank of India) is going to do, we'll have to wait and see," said AK Prabhakar, head of research at IDBI Capital in Mumbai. "There is some selling, maybe it is profit booking. But one has to be a bit careful."

On the other hand, Karthik Srinivasan, Head, Financial Sector Ratings, ICRA expects the MPC to maintain a status quo in the upcoming meeting.

"We expect MPC to adopt a wait and watch approach and look for the fiscal policy announcements during the union budget in July 2019," Srinivasan said.

Edited by Aseem Thapliyal

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