The festive season is here and the street is expecting a Diwali gift. A rate cut is almost certain from the Monetary Policy Committee of the RBI on Friday as it looks to support weak growth, especially given that inflation has remained within its comfort zone. If the MPC delivers a cut, as the street expects, it will be the fifth consecutive cut by the central bank since January.

But just how much of a cut will it be? The recent volatility in crude oil prices following the drone attacks on Saudi Aramco, coupled with the potential impact of the govt’s recent fiscal measures on fiscal deficit and inflation, could mean that the room for a rate cut may be limited.

The majority of respondents polled by CNBC-TV18 said that the MPC will deliver a 25 bps cut, and 40 percent expect a 40 bps cut.

Rate cut this fiscal

For the entire fiscal year including the October policy, a majority expects a sum total of 40 bps reduction in repo rates. Few even expect a 50 bps cut.

GDP forecast

With economic activity showing signs of sluggishness, 60 percent of our respondents expect the GDP forecast for FY20 to be lowered from 6.9 percent currently to 6.3-6.5 percent. 20 percent even expect it to be lowered to 6-6.20 percent.

Inflation

Retail inflation inched up to 3.21 percent for August, but it remained within RBI’s target of 4 percent. All our respondents expect the MPC to leave the CPI forecast of 3.5-3.7 percent for the second half of this fiscal to be left unchanged for now.

Policy tone

Lastly, the tone of the policy. Our respondents are expecting a similar, if not more dovish tone from the central bank compared to the August policy.

First Published:Oct 3, 2019 8:56 PM IST