Mumbai: A Kotak report on Saturday said it expects the Reserve Bank to cut policy rates for the fourth time in a row in the next Monetary Policy Committee meeting due in August. Also Read - RBI Postpones Monetary Policy Committee Meeting as Posts Lie Vacant
The third consecutive rate cut announced in June was the first time since 2013 amid a widespread slowdown in the economy. Also Read - RBI's First Monetary Policy Committee Meet to be Held in June
The brokerage firm listed three significant reasons for a rate cut: CPI inflation was well below the RBI’s target of 4 per cent, RBI’s accommodative stance and clear evidence of a slowdown in the economy. Also Read - Inflation Spike Led to Policy Rate Status Quo, Says RBI's Monetary Policy Committee
“Despite firming up, June CPI inflation remains well below the RBI target of 4%. Even though food inflation is gradually rising, moderate core inflation is expected to keep a check on the headline number,” the report said.
“Government’s adherence to fiscal prudence and MPC’s acknowledgment of the fading growth impulses strengthen our belief of another 25 bps cut in August. Further cuts would hinge on the growth-inflation mix,” said the report.
Kotak also said that the actual impact on inflation will depend on the total kharif supply, the government’s procurement ability and the status of monsoon.
“Unless there is a major supply shock, we do not envisage a sharp pickup in food inflation. After a slow start in June, the sowing activity is expected to pick up in July and August with the advancement of the monsoon,” Kotak said.
Core inflation broadly remained unchanged at 4.1 per cent in June. On a sequential basis, too, it remained flat and the Index of industrial production (IIP) growth softened to 3.1% in May owing to an unfavourable base effect.