Inflation at 8.98%: Experts see rate cuts

So, What do experts read into this single-digit number?

 

Yes Bank feels that the week-ended November 1 inflation below 10% has come in sooner than expected. "We see a 50 bps repo rate and 25-50 bps reverse repo rate cut in the near-term. We expect RBI to infuse more liquidity."

 

Saugata Bhattacharya, Economist at Axis Bank, sees the inflation number at 8.98% as a pleasurable shock. 

 

 

 

 

 

Arvind Sampath of Standard Chartered Bank feels the market would start preparing for a repo rate cut as well as as for a reverse repo cut.

 

 

 

 

Indranil Pan, Chief Economist with Kotak Mahindra Bank is not sure about the RBI action since liquidity at present is more or less stabilizing.

 

 

 

 

A Prasanna of ICICI Securities said, "This number has come out mainly because of the fuel price updation and it is not a surprise we were just expecting it to happen over the next week."

 

 

 

Are any rate cuts on the anvil?

 

Saugata Bhattacharya feels the RBI can cut repo rate as well as the reverse repo rate without even waiting for a fuel price cut from the government as it has a lot more headroom than they had just about 15 days back. Given the way that other price indexes have been falling probably then these will again get reflected in the domestic price indexes.

 

Arvind Sampath sees repo more in terms of being phased out and feels that one would probably look for an immediate target of around 7.40% on the ten-year within few days and then we look at medium-term probably 7.35% or even lower than that. He sees a repo rate cut possibly in December with more liquidity coming into the market through spending.

 

Indranil Pan said, “Even if they reduce the repo rate I don’t think there is any significant scope immediately for the borrowing cost of the corporates to come down,” he said. He added that the lower inflation number definitely provides that much of scope for RBI to react given the fact that global conditions are also not conducive enough.

 

Pan said by the end of the year we could also see another 100 bps point reduction in CRR and another 50 bps in the repo.

 

Yes Bank feels the time is ripe for RBI to further cut rates. "We see a 50 bps repo rate and 25-50 bps reverse repo rate cut in the near-term. We expect RBI to infuse more liquidity."

 

A Prasanna of ICICI Securities sees inflation at 4.5% by March. It expects inflation to continue its downturn trend.