The Reserve Bank of India is expected to cut policy rates on March 19, according to a Reuters poll, after the weakest economic growth in a decade, slowing inflation and a commitment by the government to contain its fiscal deficit.
Of the 40 analysts polled, 32 expect the Reserve Bank of India to cut the policy repo rate by 25 basis points to 7.50 per cent, a view in line with a poll conducted in January.
The latest survey was conducted before Tuesday's data that showed industrial production expanded in January for the first time in three months while retail inflation picked up slightly in February.
The wholesale price index (WPI), the main inflation indicator, rose an annual 6.84 per cent in February, higher than the 6.6 per cent rise estimated by analysts.
Such a moderation may give the apex bank breathing space to consider a rate cut.
"Continued downside surprise in growth, along with relatively benign inflation prints and sharp tightening in government spending, should allow the RBI to deliver one more 'calibrated' dose of easing," said Siddhartha Sanyal, India economist at Barclays Capital.
"The elevated current account (deficit) remains a concern. But the growth-inflation dynamics should be overpowering at the moment," Mr Sanyal said.
The RBI cut the repo rate by 25 basis points to 7.75 per cent in January after leaving rates on hold for nine months. The bank said at the time that sticky inflation as well as high current account and fiscal deficits remained constraints for big cuts.
India's economy grew at 4.5 per cent in the December quarter and is on track for its slowest performance in a decade at around 5 per cent for the fiscal year that ends in March.
The median estimate of 36 respondents in the poll is for the Reserve Bank to further reduce the repo rate by 25 basis points by June.
The new poll also showed rate cut expectations further in the year are appearing less certain, with half of respondents now expecting the repo rate to fall to 7.00 per cent by the end of December. In the last poll, 15 of 29 respondents expected the repo rate to fall to 7.00 per cent by the end of September.
RBI governor Duvvuri Subbarao struck a hawkish note last week, rejecting views of high inflation as a "new normal" for India and said many of the supply driven causes can be corrected.
Most respondents expect the central bank to keep the cash reserve ratio (CRR) for banks unchanged at 4 per cent. CRR is at its lowest since 1976. Of the 37 respondents, 31 do not expect a CRR cut on Tuesday.
Copyright @ Thomson Reuters 2013
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