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The Reserve Bank of India (RBI) is likely to cut interest rates one more time in June before rising inflation pressures and elevated fiscal deficits left little room for further accommodation in rest of the year, IHS Markit said on Wednesday.
The RBI had cut interest rate by 25 basis points each in February and April to boost economic growth.
In a report on the forecast for global monetary policy actions and resulting economic impact, the London-based global information provider said the RBI is likely to tighten its monetary policy stance in early-to-mid 2020.
“With both domestic and global growth slowing and inflation in India remaining below the RBI’s inflation target, it is now increasingly likely that the RBI will proceed with another rate cut in June.
“Beyond June, intensifying inflation pressures and elevated fiscal deficits will leave little room for further accommodation, and we expect no additional rate cuts in 2019 with the monetary policy likely to switch to tightening in early-to-mid-2020,” it said.
Monetary policy easing, coupled with the relaxation of lending rules and greater election-driven fiscal spending in the first quarter of 2019, would provide some support to growth during the first half of 2019-20 fiscal, it said.
The report noted that food and fuel prices should accelerate in coming months, particularly in the event of a sub-normal monsoon, and headline inflation would cross 5 per cent mark by the second half of 2019, and average 4.2 per cent in 2019 and 5.3 per cent in 2020.
IHS said globally monetary tightening cycle seems to be over for now.
The acceleration in global growth that occurred in 2017 led some key central banks to begin a steady–albeit slow–tightening of monetary policy. The US Federal Reserve, the Bank of Canada and the Bank of England were in the vanguard.
