25bps repo rate cut more likely in Apr than Feb: Citigroup

The Budget pegged the fiscal deficit at 3.2% of GDP in 2017-18.

The central bank will hold its next monetary policy meet on February 8. Photo: Reuters

The government's commitment to fiscal consolidation in the Budget will help the Reserve Bank adopt an accommodative monetary stance, but a rate cut is more likely in April than in policy review meet next week, says a report.

According to global financial services major Citigroup, the RBI's timing remains uncertain, but the possibility of a 25 bps rate cut is high in the near-term.

"Lower-than-feared fiscal deficit target and smaller market borrowing are positive for rates," Citigroup said in a research note, adding "the room for rate easing is limited" 25 bps cut more likely in April than in the February policy".

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On December 7, the central bank kept interest rate unchanged despite calls for reducing it and also lowered the economic growth projection by half a percentage point to 7.1% in the first policy review post demonetisation.

The central bank will hold its next monetary policy meet on February 8. The Budget pegged the fiscal deficit at 3.2% of GDP in 2017-18, as against 3.5% in 2016-17.

Going forward, the Fiscal Responsibility and Budget Management (FRBM) committee has suggested making debt-to-GDP ratio the most important metric and wants it to be brought down to 60% of GDP by 2023.

"The better than feared deficit target and commitment to fiscal consolidation will keep hopes of a RBI rate cut alive," the Citigroup report said adding "the Budget reinforces our view of another 25 bps cut in repo rate".

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