5 reasons why RBI will cut interest rates in May

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5 reasons why RBI will cut interest rates in May
The Reserve Bank of India is set to meet on May 3 to review its monetary policy. It's likely that the Reserve Bank of India (RBI) will cut interest rates in its policy meeting and here's why.

Inflation is falling

WPI Inflation for March has fallen to 5.96%, the lowest in the last three years. Inflation is one reason which has ensured the RBI does not cut rates aggressively. With inflation falling, expect the RBI to cut interest rates by at least 0.25 per cent.

Low growth rates

Growth rates in India have fallen and the GDP has come in at just 4.5 per cent for the quarter ended Dec 31, 2012. This is the lowest growth rates seen in a decade. A cut in interest rates will spur investment and help growth.

Crude oil prices are falling

Crude oil forms the largest component of our imports. Falling crude prices would help reduce are imports and also inflation.

Falling gold prices

Gold prices are falling, which means our overall imports of gold would reduce, because we import gold. Reduced import of gold would ensure lesser pressure on the current account deficit and hence on the Indian rupee. A strong Indian rupee would reduce our import bill.

Reviving the investment cycle

Higher interest rates are a deterrent for fresh investment from corporates. A drop in interest rates would help push the investment cycle and hence growth rates in the economy. The RBI might hence be prompted to drop rates to push the investment cycle.


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