The Reserve Bank may cut rate by 25 basis point even before its monetary policy review on June 2 as inflation is easing and the US Fed tightening is expected by year end, SBI said in a research note today.
Wholesale Price Index based inflation would possibly slide to a negative 2.7 per cent or even lower. Before keeping the key policy rates constant in its last bi-monthly monetary policy in April, RBI in a surprise move had slashed the key repo rate twice by 25 bps each, to 7.50 per cent.
The easing of repo rate was mainly driven by decline in prices of vegetables and fruits, ebbing price pressures in respect of cereals and large fall in international commodity and crude prices. RBI will hold its next monetary policy review on June 2. On Fed rate hike, the report said it is likely to go for a rate hike possibly in 2015 for "Non-Macro Reasons".
US Fed rate hike is closely linked to the US Presidential elections, SBI Research said, adding that there is a great chance that the US may "front-load" its rate hike in September/December this year. "An analysis of past years' trend suggests that there is at least a 37 per cent probability that a rate hike in an election year leads to a change in the ruling party's position," the report said.