Goldman Sachs now expects the Reserve Bank of India to cut the repo rate by 50 basis points by mid-2013,versus its previous forecast of an equivalent cut only in the March quarter of 2014.
“This is due to a weak inflation print in March and the sharp recent declines in the prices of oil,gold,and the trade deficit,which suggest a near-term improvement in the current account deficit,” the investment bank says in a note.
Goldman Sachs also lowered its inflation forecast for FY14 to 6 percent from 6.8 percent due to large near-term reductions in the inflation trajectory,noting it was ‘surprised’ by the extent of recent decline in WPI inflation.
However,the investment bank adds,the timing of policy rate cuts beyond May is more contentious,with the central bank likely to cut rates once more in the summer.
Goldman says it takes out its 50 bps cut pencilled in 1Q 2014 after bringing it forward by mid-2013.