(Repeats story from Tuesday)
* RBI likely to cut repo rate 25 bps on Wednesday - poll
* Would bring repo to 6.00 pct, lowest since Nov 2010
* But analysts divided; some expect rate cut in April
* Much will depend on RBI's stance on GDP, inflation
By Suvashree Choudhury and Rafael Nam
MUMBAI, Feb 7 India's falling inflation rate
gives the central bank room to cut its policy rate to a more
than six-year low to help an economy hit by a crackdown on cash.
The question is whether the Reserve Bank of India will pull
the trigger on Wednesday or wait until April.
A Reuters poll last week, conducted before the government
presented its annual budget, showed 28 of 46 participants
expected the RBI on Wednesday to cut the repo rate
by 25 basis points to 6.0 percent, its lowest since November
2010. Another two expected a 50 bps cut.
That slight bias toward a cut now remained in place after
the government delivered a budget that kept its fiscal deficit
target for the year starting in April at 3.2 percent of gross
domestic product, below the 3.3 to 3.5 percent expected by
The fiscally prudent budget could comfort the RBI's
six-member monetary policy committee (MPC), and raise the
prospect of a rate cut sooner rather than later, given price
Consumer inflation fell to a two-year low of
3.41 percent in December - below the RBI's end-March 2017 target
of 5 percent and medium-term target of 4 percent.
LIMPING BACK TO HEALTH
Those two factors could let the RBI make its first cut since
October to boost an economy dealt a major blow when Prime
Minister Narendra Modi in November abolished high-value notes in
a bid to target unaccounted cash.
Asia's third-largest economy is limping back to health
after the cash crackdown. The Nikkei/Markit manufacturing
purchasing managers' index for January showed expansion though
the services gauge showed a third month of contraction.
"A February rate cut is a better window than April as it
complements the government's affirmative step in the budget
towards fiscal consolidation," said Radhika Rao, chief economist
at DBS Bank in Singapore.
But it will be a close call.
At its last review in December, shortly after Modi's
announcement, the RBI unexpectedly held rates, saying it
expected the ban on big-notes to have only a "transitory" impact
on growth, and citing the need to monitor inflation.
OPT FOR CAUTION?
The MPC could again opt for caution, even as some analysts
believe the central bank risks acting too late to aid the
economy, with private forecasters generally more pessimistic
than the RBI.
The International Monetary Fund sees the economy growing at
6.6 percent for the year ending March, below the RBI's 7.1
But to some analysts, caution is justified given the
volatility in inflation and how banks have substantially slashed
their lending rates this year after receiving a surge in
deposits from people holding cash.
The lower interest levels should allow better transmission
of the RBI's rate cuts, totalling 175 basis points since January
The RBI may also want more time to gauge the impact of
global headwinds on the rupee. Expectations of rate
hikes by the U.S. Federal Reserve this year and Donald Trump's
election have sent funds away from emerging markets.
A. Prasanna, economist at ICICI Securities Primary
Dealership, cited these external factors as increasing the
difficulty in predicting whether the RBI will cut now or in
"Although the Fed is expected to only gradually raise rates
in 2017, pressure on emerging market currencies will remain and
we expect the RBI to emphasise this while setting policy," he
(Editing by Richard Borsuk)