Reverse is likely to lead the way in the interest rate regime in 2015 compared to the year gone by when the domestic markets witnessed a firming up of rates.
“We have a positive outlook on interest rates. We expect the Reserve Bank of India (RBI) to reduce the repo rate by 75 basis points by March, 2016,” said Dhawal Dalal, Executive Vice President and Head – Fixed Income, DSP BlackRock Mutual Fund.
“We expect the first repo rate cut of 25 basis points by March 2015,” he said, adding, “We expect the benchmark 10-year Government securities (G-Sec) to touch 7.50 per cent by December 2015.”
During the last monetary policy review in December 2014, the RBI kept the repo rate unchanged at eight per cent, in spite of the decline in consumer price index (CPI) inflation from 8.6 per cent in April 2014 to 5.5 per cent in October 2014, that had benefited from a favourable base effect, seasonal fall in prices of vegetables and fruits, moderation in global commodity prices and the disinflationary impact of low economic growth.
“While subsequently released data indicated that inflation eased further to 4.4 per cent in November 2014, we expect it to go up to 5-6.2 per cent in the remainder of 2014-15, as the favourable base effect for food prices wanes,” said Aditi Nayar, Senior Economist, ICRA.
The central bank indicated a likely change in the monetary policy stance in early 2015. Given the RBI’s focus on fiscal consolidation, a rate cut appears unlikely prior to the presentation of the Union Budget for 2015-16 at the end of February 2015. “We expect repo rate cut of up to 50 basis points by mid-2015, if the monsoon forecast for 2015 is normal, crude oil prices remain at subdued levels and exchange rate volatility remains contained,” said Ms. Nayar.
“We expect the RBI to cut rate by 50 to 75 basis points by December 2015,” said D. K. Joshi, Chief Economist, Crisil. According to him inflation is coming down which would cushion the rate cut. “Inflation has come down faster than expected and we have a forecast of six per cent in the current year,” he said adding the G-Sec would touch 7.90 per cent by March 2015.
Even though markets believe that interest rate will come down in 2015, banks are unlikely to transfer the benefits of lower interest rate to customers in the current year.
