Bank Policy Tuesday: Decks cleared for a 25 bp rate cut

Though some would still recommend that the Central bank wait till December (RBS) and jump in with another 50 bp cut, I would think too many jumps would not be our conservative bank’s cuppa tea in the morning on tuesday.

Banks are running down yields in the Fixed Income market and as long as credit markets are buoyant the increasing demand for fixed income/funding will not depend per se on the RBI’s announcing the rate cut this Tuesday.

However, the structural changes required in tracking core inflation/ consumer inflation and fiscal reform need not become a barrier for RBI to take that decision. In light of the recent pick up in manufacturing and consumer demand the RBI may grant the 25 bp rate cut leaving a 10-20% probability that the bank wait for more ribust signs of such growth. 



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