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RBI seen to cut rates

New Delhi, Dec. 25 (PTI): The Reserve Bank of India is likely to lower key interest rates by 0.75 per cent next year with a strong possibility of a 0.50-per- cent cut in the January-March quarter itself, Citigroup said.

According to a report of the bank, the positive surprises in the recent WPI inflation data — both headline and core — and likely ebbing of inflationary pressures may prompt the central bank to cut key interest rate in its next policy meet. The third quarter review will be unveiled on January 29.

“Going forward, we maintain our view of 75 basis points of easing in 2013, with 50bps likely during January-March,” Rohini Malkani, economist at Citi, wrote in the report.

One basis point is equivalent to 0.01 per cent.

In the mid-quarter monetary policy review on December 18, the RBI left the short-term lending (repo) rate and the cash reserve ratio unchanged at 8 per cent and 4.25 per cent, respectively.

The report further added that “easing core inflation and expectation of lower food and manufacturing prices are key factors behind the likelihood of growth-focused policy in the next months”.

Retail inflation, based on consumer price index, remained close to double digits at 9.90 per cent in November, while WPI inflation stood at 7.24 per cent.

Though these levels are much above the RBI’s comfort zone of 5-5.5 per cent, inflation is showing some signs of easing in recent months.

 
 
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