Fiscal prudence by the incumbent regime, moderating inflation and hopes of a better monsoon has paved the path for overall decline in interest rates. The consensus now calls for a cut in the repo rate by 25 basis points, while experts also do not rule out an aggressive move of 50bps cut. We infer that Raghuram Rajan may not shy away from the delivering an aggressive rate cut, given that the central bank has done the same in the past as well. Some may argue that the prevalent situation may not demand a 50bps move, but RBI can justify the rationale that such aggressive cuts can be frontloaded in order to stimulate the economy and will accordingly monitor the ensuing inflationary and growth numbers before taking a call on the future course of the interest rate trajectory.
Please find attached a note on the same.
Warm Regards,
Amar Ambani
Head of Research
IIFL
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