Experts believe that the RBI India may further lower the repo rate by 25 to 50 bps in keeping with its accommodative monetary policy for the next year as well. Although the Federal fund rates were raised up to 25 basis points recently, which further narrowed the distance between US interest rates and Indian interest rates.

1. RBI may lower repo rate of 25-50 basis
points in 2016
Expertsbelieve thatthe Reserve Bankof Indiamayfurtherlowerthe reporate by25 to 50 bpsin
keepingwithitsaccommodative monetarypolicyforthe nextyearaswell.Althoughthe Federalfund
rateswere raisedupto 25 basispointsrecently,whichfurthernarrowedthe distance betweenUS
interestratesandIndianinterestrates.
In a recentstudyconductedamongstfundmanagers,bankexecutivesandeconomistsshowedthat
more and more participantsinthe financial marketare rootingforlowerreporatesfromRBI. They
demanda reductionof at least25 basispointsinthe upcomingyear2016. Thisdemandisin line with
theirexpectationsthatcommoditypriceswill remainonthe lowerend,peggedatthe pre-determined6
percent,andthus,keepingthe rate of inflationincontrol.
Experteconomistssuchasthe likesof RadhikaRao,from DBS bankrecentlystatedherviewpointthat,
theycan see small windowwherethere wouldbe roomforsofteningthe ratessubjecttothe inflation
climate.The inflationaverage of April toNovember,2016 saw a minimal rate of 4.6 percentwiththe
base effectsonlybeginningtokickinfor the remainingmonthsof thisfiscal.So,itissafe to saythat the
entire yearwill average at5 percentincase of inflationrates.
Accordingto a survey,ithas beennotedthat15 respondentspredictareductioninrepoof 25 to 50 bps.
While 20 percentof respondentssaythatthere will be areductionof 50 to 75 bps.Only1 saidthat the
Reserve bankmaylowerthe ratesby75 to 100 bps.Such a view wasalsoexpressedbyArunTiwari,
Chairmanand ManagingDirectorof UBI (UnionBank of India).He statedthat there mightbe a reduction
of reporatesof 75 to 100 basispointsas several othereconomieshave maintainedtheirratestonearly
‘0’ level,inareaslike JapanandEurozone.Alsohe pointedatthe RBI governor’sstatementwhere he
had suggestedthatthe central bankswouldworkina tandem. Gatheringfromsuchstatementsand
trendshe believesitissafe toexpectasignificantcutinreporates.
Furthermore,expertsbelieve there wouldbe asubstantial reductioninreporatesfromthe RBIin order
to pusheconomicgrowthas perplan.Because the presentgrowth spurtof double digits inconsumer
demand, maynot be a longlastingone as itis linkedtothe presentfestive/holidayseason.
All indicatorspointtothe fact that the economyisstill inthe initial stagesof recoverywhilestill
weaknesslurksincertainsectorswhichneedtobe addressed.However,withthe Fedhike more and
more investorsare trustingonrecoveryof US and hence,theyexpectincreaseinriskappetite for
segmentslike Indiaamongstforeigninvestors. So,manyexpertsare onthe optimisticteamasperthe
economiccurrentscenario.