Reserve Bank of India may cut rates by 25 bps by mid-2012: Poll

MUMBAI: The Reserve Bank of India is widely expected to keep rates on hold at its review on Friday, but economists in a poll expect it to accelerate monetary easing in 2012 as economic conditions worsen in Asia's third-largest economy.

All but one of the 20 economists surveyed expect the Reserve Bank of India (RBI) to keep rates on hold at its mid-quarter review on Friday.

The RBI has raised interest rates 13 times since early 2010, lifting its key lending rate, the repo rate, to 8.50 per cent. It signalled in October an inclination to leave rates on hold in coming months on expectations that persistently high inflation will begin to ease.

While most economists polled did not forecast an interest rate cut until the second calendar quarter of 2012 -- retaining the view held in a poll conducted in mid-October -- they now expect the RBI to begin trimming the cash reserve ratio

earlier than they did previously. All but one of 15 respondents expect the RBI to keep the CRR, the per centage of deposits banks must maintain with the RBI, firm at 6 per cent on Friday, with one expecting a cut, despite market chatter that the RBI might trim the requirement in order to ease tight market liquidity.

However, 5 of 11 respondents expect a CRR cut by the end of the first quarter of 2012, and a majority among the same group expect a cut by June. In an October poll, the median view held that CRR would stay at its current 6 per cent through September.

Industrial output fell in October for the first time in over two years as capital goods investment slumped. The plunge of 5.1 per cent from a year earlier was far worse than the 0.5 per cent drop economists had forecast in a Reuters poll.

"The authorities should be comforted by signs of moderation in the headline inflation (if the outcome does not deviate much from consensus), though still-elevated levels will deter any possible shift towards an easing bias at least until end-FY12," said Radhika Rao, economist with Forecast Pte in Singapore.

India's 2012 fiscal year ends in March. Headline inflation for November is expected to ease to 9.04 per cent from 9.73 per cent the month before, according to a Reuters poll. It is due to be announced on Wednesday.

Source: EconomicTimes