The Reserve Bank of India (RBI) is likely to reduce the short-lending (repo) rate by 25 basis points (0.25%) in the next week's policy review on the back of recent decline in wholesale price-based inflation, rating agency Icra said today.
"Following the recent easing in headline wholesale inflation and core inflation, Icra expects the RBI to decrease the repo rate by 25 bps in the policy review on Tuesday," Icra said in a report.
As per the rating agency, the space available for the RBI is likely to be limited to a total of 50 bps during the fourth quarter of FY13 and a further of 50 bps during the first half of the next fiscal.
There is less possibility of a reduction in the CRR (cash reserve ratio) on January 29, said the report.
"The likelihood of a cut in the CRR on Tuesday is low" as utilisation under the LAF corridor is expected to remain substantial in the fourth quarter. Any spike in liquidity deficit is likely to be moderated through OMOs, it said.
On the slowing deposit growth, the report said it would be in the range 12.5-14 per cent in FY13.
"Even as banks find it difficult to raise retail deposits, the fall in issuance of certificates of deposit and bulk deposit mobilisation following the Finance Ministry's recent instruction to public sector banks on containing their bulk deposits will further put pressure on deposit mobilisation during FY13. Overall, we expect deposits to expand by around 12.5-14 per cent in FY13."
Banks have posted a deposit growth of 11 per cent as of December as against the revised growth forecast of 15 per cent by the RBI, it added.
On the credit growth, Icra said it is likely to be around 14.5 per cent to 15.5 per cent in FY13, lower than the RBI forecast of 16 per cent. In this perspective, it said banks are likely to lower lending rates as policy rates ease in Q4 of of this fiscal. On the inflation, Icra said core inflation may display an uptick following the Government's decision to allow full deregulation of diesel to bulk consumers and partial deregulation to retail consumers.
It said higher prices of perishable foods following the below average temperature in the North are expected to add to inflationary pressure in January.
Merchandise and services exports are likely to be weak due to insufficient supply of electricity in parts of the country combined with slowdown in global economy.
"Factoring in average inflation of around 7.5 per cent in 2012-13 and monetary easing of around 50 bps in Q4, we expect GDP growth to ease to 5.4 per cent this fiscal from 6.5 per cent last fiscal," the report said, adding the medium-term outlook remains favourable for growth.
On the external commercial borrowing front, the report said the rupee volatility and the anticipated softening of domestic borrowing costs were likely to limit the attractiveness of ECBs in the ensuing quarter.
The rating agency also said the domestic bond yields are expected to remain attractive to the investors in the near to medium-term despite possibility of further softening in the fourth quarter.
Corporate bond issuances are expected to be robust in the fourth quarter on the back of expected tax-free bond issuances in the near future, it added.