Siddharth Sanyal of Barclays sees CPI inflation inching closer to the 5 percent handle, averaging below Rajan's expectation or target of 6 percent inflation towards end of 2015-16. Keeping that in mind, he expects another 25 basis points cut by June, but post April 7 policy.
A rate cut was on the cards if one were to take a longer-term view with most people expecting it on April 7, is the word coming in from Siddharth Sanyal of Barclays. But at the same time, clear disinflation trend and the quality of the fiscal deficit number in the Budget was a clear indication that a rate cut was likely to happen sooner rather than later, he says.
While this rate cut was a positive surprise, Vivek Rajpal, Asia rates strategist at Nomura says the quality of fiscal consolidation – as stated in the Budget – was a precursor to interest rate cut. RBI governor Raghuram Rajan had earlier mentioned that it is not the fiscal deficit number that matters, it is the quality of the consolidation that is important. Today's rate cut, according to him, is a stamp of approval.
Sanyal sees CPI inflation inching closer to the 5 percent handle, averaging below Rajan's expectation or target of 6 percent inflation towards end of 2015-16. Keeping that in mind, he expects another 25 basis points cut by June, but post April 7 policy. Towards the middle of the year, he expects the Reserve Bank to take a closer look at inflation from a longer-term perspective.
Rajpal too says that the market expects another 25 bps rate cut. He, however, adds that deeper cuts will depend on how inflation pans out. He says the market expectation has always been of a 7-7.25 repo rate.
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