Barclays sees RBI easing aggressively; 75 bps cuts by Dec

British brokerage Barclays on Tuesday said the Reserve Bank will reduce its policy rates by a hefty 0.75 per cent till December as against the earlier estimate of 0.25 per cent following further cooling off in inflation.

"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.

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, the brokerage said.

RBI, which has repeatedly been articulating its concern on inflation and sees taming that number as the key objective of the monetary policy, is scheduled to announce its mid-quarter review on June 17.

In its annual policy announcement on May 3, it 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.

Barclays, however, revised down its GDP growth forecast to 6 per cent for this fiscal 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 fiscal, while the RBI sounded more hawkish than North Block and pegged at 5.7 per cent in its annual policy announcement.

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."

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 yesterday at 55.11 to the greenback and today it traded a tad better at 55.065 at 1430 hours.