Inflation is stable and overheating fears in the economy are over, setting the case for a boost to lending. Financial industry insiders believe the stage is set for the Reserve Bank of India (RBI) to effect a cut in its key policy rate for the first time in more than four years, when it reviews monetary policy on October 24.
The cut in the repo (repurchase) rate is expected to be a steeper 50 basis points, to signal a strong shift in policy focus to growth from inflation. Repo rate is the rate at which RBI provides funds to banks against the collateral of government bonds for a day to three days.
“We would not be surprised if a 50 basis points (0.5 percentage point) repo rate cut is delivered on or by the October policy meeting,” said Manas Paul, Economist with Hongkong and Shanghai Banking Corporation.
Saugata Bhattacharya, vice-president at Axis Bank also expects the RBI to cut its repo rate by 50 basis points on October 24 to 8.5 per cent from 9 per cent.