By Anu Bararia
BENGALURU, Sept 30 India's central bank will
probably keep interest rates on hold at its meeting on Oct. 4,
although the decision is close, with tame inflation pointing to
the strong possibility of a 25-basis-point rate cut by the end
of the year, a Reuters poll showed.
Next week's review is Governor Urjit Patel's first as chief
of the central bank, and several analysts in the poll said they
expect him and the newly-formed Reserve Bank of India Monetary
Policy Committee to follow a more dovish path than his
predecessor Raghuram Rajan.
During Rajan's three-year term, inflation was routinely
running well above 5 percent, the target set for March 2017. But
it fell to a five-month low of 5.05 percent in August, giving
the new RBI governor leeway to cut rates.
The consensus view of 44 economists surveyed this week
showed the central bank will leave the repo rate
unchanged at 6.50 percent on Oct. 4. However, just over 40
percent of them - 18 of 44 - forecast a cut, with most of them
saying by 25 basis points.
While opinion is divided for the October meeting, there is
almost unanimous agreement of a cut going forward. Most expect
the repo rate to be cut to 6.25 percent by end-December and then
again to 6.00 percent in the third quarter of next year.
"Room for another cut does exist...and given weaker gross
domestic product and industrial production readings, it will
likely be used," said Hanna Luchnikava, senior economist at IHS
Annual GDP growth in Asia's third-largest economy slowed to
7.1 percent in April-June from 7.9 percent the previous quarter,
stymying the government's efforts to boost growth to more than 8
percent to create jobs for millions of unemployed youth.
The new RBI chief is also likely to focus more on growth
than worry about inflation, analysts said.
While recent wage increases for government employees are
likely to push both consumer demand and inflation higher,
above-average monsoon rains, vital for India's vast farm sector,
are expected to cool food prices.
But with food inflation risks still lingering, Luchnikava
said the RBI would rather wait until December to cut.
Although the RBI wants to bring inflation down to 4 percent
in the medium term, more than half of economists who answered an
additional question in the poll - 17 of 30 - said it would not
tie itself down to a timeline at the Oct. 4 meeting.
"The RBI is unlikely to specify the deadline for such an
aggressive inflation target," said G. Chokkalingam, founder of
Equinomics Research and Advisory.
The vast majority of poll respondents said the RBI would not
change its March 2017 deadline for banks to recognise their bad
assets. The poll also found the RBI would freeze its cash
reserve ratio at 4.00 percent until the end of next year.
(Polling by Shaloo Shrivastava and Khushboo Mittal; Editing by