Five reasons RBI may cut interest rates

The Indian markets are all geared up and are eyeing the RBI bi-monthly meet, the outcome of which is going to be out in the late afternoon. Many analysts believe RBI may cut interest rates by 25 basis point, however a 50-basis point cut could be the surprise element which is going to trigger the market. Following are the five reasons why the apex banking body will go for a rate cut.

1.Consumer inflation—the gauge that the RBI looks at to set monetary policy—came in at 4.2 per cent in October, below the 5 per cent target the bank wants to hit at the start of 2018.

2.Third-quarter economic growth missed economists’ expectations for a 7.5 per cent increase, and that is likely to be dented further by the government’s move.

3.As emerging-market currencies slid to record lows against the U.S. dollar, central banks in those countries were mostly oriented towards tightening their stances, as they attempt to stem capital outflows.

4.Demonetisation has left a liquidity crunch in the country and has demoralised the demand, and a rate cut will boost demand.

5.Fed meet is key as there are chances that fed may hike its rates, and emerging economies like India will take a note of this while deciding rates.