RBI Monetary Policy: Goldman Sachs Bets On Another Rate Cut Before 2019 Ends
Goldman Sachs, however, does not see space for further easing as retail inflation is likely to rise beyond RBI’s 4 percent target.
After an unconventional 35 basis points repo rate cut in the August monetary policy review, the Reserve Bank of India is likely to go for a quarter-point reduction in the December quarter of 2019, Goldman Sachs Inc. said in a report on Thursday.
On Wednesday, RBI’s monetary policy committee cut the repo rate for the fourth time in 2019, bringing it to 5.40 percent—a nine-year-low—while maintaining a nuetral policy stance.
The central bank also revised downwards its projection of India’s GDP growth rate to 6.9 percent for 2019-20 from 7 percent in its June estimate. It also projected India’s retail inflation at 3.1 percent in the second quarter of 2019-20 and 3.5-3.7 percent in the second half of the financial year.
"We now see a high probability of another repo rate cut by 25 basis points rate in Q4 of 2019," Goldman Sachs said in the report. It does not see space for further easing as retail inflation is likely to rise beyond RBI’s 4 percent target.
RBI has been increasingly responsive to global and domestic growth concerns, the U.S.-based investment bank said.
"In light of growing global trade policy risks, and the possibility of a no-deal Brexit, risks are likely skewed towards further reduction in the rates," Goldman Sachs said. Markets, however, still think there will be space for another 50-basis-point rate cut over the next two years, it added.