Reserve Bank of India may further ease rates

New Delhi: The Reserve Bank of India is expected to go for a further rate cut in the next month's monetary policy review as inflation is expected to pan out in line with the Central bank's projection, experts say.

According to global as well as domestic brokerages, moderating inflation and a negative output gap are likely to open the door for an accommodative monetary policy. According to official data, retail inflation inched up marginally to 3.21 percent in August from 3.15 percent in July, mainly due to costlier food items.

India's industrial production growth slowed to 4.3 percent in July, dragged mainly by the manufacturing sector's poor show. "Contained inflation and a larger negative output gap set the stage for policy easing in October. We expect 40 basis points (cut) cumulatively in Q4," Japanese financial services major Nomura said in a research note.

It further said the RBI's FY'20 GDP growth projection of 6.9 percent "appears too optimistic" and is widely expected to be downgraded at the October 4 policy meeting. According to Bank of America Merrill Lynch, the RBI rate cuts are necessary to bring real lending rates down to incentivise investment. Domestic brokerage Kotak Securities in a report said CPI inflation is likely to remain benign in the near term given the weak growth impulses.