RBI poised to cut rate

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.

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.

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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.