RBI may keep interest rates unchanged on April 6; expects 25 bps cut in August: BofAML

The Reserve Bank of India (RBI) is likely to keep key interest rates unchanged on April 6, while there is scope for a rate cut in the August meet on slow growth and benign inflation, says a report.

The RBI shifted to a neutral stance from accommodative in February and this, in turn, may prompt the central bank to hold rates in the ensuing meet early next month.

"Still, it will likely to keep the door open for further easing with growth slowing, benign inflation and the need to attract Foreign Portfolio Investment (FPI) inflows by supporting growth," Bank of America Merrill Lynch (BofAML) said in a research note adding "we continue to expect a 25 basis points RBI cut on August 2".

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At the February 8 policy review meet, the RBI kept key interest rates unchanged at 6.25% and said it is awaiting more clarity on inflation trend and the impact of demonetisation on growth.

The next meeting of the Monetary Policy Committee (MPC) is scheduled for April 5 and 6.

The report further noted that high lending rates and demonetisation will likely push recovery to the second half of this year and inflation is also likely to remain well within the RBI's 2 to 6% target range.

Moreover, RBI rate cuts should support the Indian rupee by attracting FPI equity inflows at a time of global uncertainty.

Besides, the RBI will initiate the setting up of a quasi-government asset management company to address bank asset quality issues and will provide the roadmap for a standing deposit facility, BofAML said. 

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