Market analysts and economists expect Reserve Bank of India (RBI) to reduce policy repo rate in its mid-quarter policy review on June 17 considering the fall in inflation and sluggish economic growth.
Earlier, RBI said it would take into account falling inflation while deciding on policy initiative in its review next month.
Leif Lybecker Eskesen, Chief Economist for India & ASEAN at HSBC feels that the inflation picture was clearly improving, which has increased the chance that the RBI will ease again.
But the elevated inflation expectations and the wide current account deficit has limited the room for rate cut, Eskesen said.
According to Morgan Stanley, RBI may reduce policy rates by a further 25-50 bps (0.25-0.50 per cent) by March 2014 and it expects market oriented interest rates to fall 100 bps (1 per cent).
Inflation based on wholesale price index (WPI) declined to a 41-month low in April (4.89 per cent), which is below the RBI's comfort zone of 5 per cent and fuelling market hopes of more monetary easing to revive sagging economic growth.
Barclays expect RBI to reduce the repo rate by 7 per cent (another 25 bp cut) by mid-2013 and it also expects further rate cuts (another 50 bp to 6.50 per cent) in the second half of 2013.