Barclays sees RBI easing policy rates by 75 bps by December

The Reserve Bank of India will reduce its policy rates by a hefty 0.75 per cent till December, against the earlier estimate of 0.25 per cent following further cooling off in inflation, according to British brokerage Barclays.

RBI, which has repeatedly been articulating its concern on inflation, is scheduled to announce its mid-quarterly policy review on June 17.

In its annual policy announcement on May 3, RBI had cut the repo rate by an expected 0.25 per cent but sounded hawkish on headline inflation, which dipped to below 5 per cent in April, and will harden again in second half.

"We are now expecting another 0.75 per cent of repo rate cuts over the remainder of 2013 (as against) the 0.25 per cent previously," Barclays said in a note, adding the recent macroeconomic data has led to the expectations.

In what can be music to policymakers, Barclays said it expects international rating agencies to revise the country's sovereign rating later this year.

"Sustained progress on the fiscal position, inflation, the current account and growth could lead the rating agencies to reassess the sovereign's rating outlook later this year."

The brokerage, however, revised down its GDP growth forecast to 6 per cent for this financial year from the earlier estimate of 6.2 per cent on disappointing data on the industrial activity front.

"We would also not dismiss the possibility of further downside risks to growth, especially in the near-term," the report added.

The finance ministry expects growth to come in between 6.1 and 6.7 per cent in the current financial year, while the RBI sounded more hawkish than North Block and pegged it at 5.7 per cent in its annual policy announcement.

The average wholesale price inflation for FY14 will come at 5.3 per cent, while the consumer price inflation will average under 9 per cent, which would be a five-year low, Barclays said.

On the equities front, the note said it is bullish on private banks which have shown resilience to the overall woes and with rates slated to fall, it sounded excited about the 4-wheeler space as well.

Barclays said it expects the rupee to trade at the Rs 54 to a dollar level by September and Rs 55 by March 2014. The rupee crashed to an over five-month low on Monday at 55.11 to the greenback and traded a tad better on Tuesday at 55.065 at 2.30 pm.

With inputs from PTI