Bankers said that sharp correction in global commodity prices, coupled with recent plunge in WPI has increased the scope for a sharper rate cut than the earlier consensus estimate of a 25-bp reduction.
"Downside surprise in headline and core inflation, and softer commodity price outlook have offered the Reserve Bank of India (RBI) greater headroom for monetary easing. We expect another 50-bp repo rate cut during this quarter. While a 25-bp cut on May 3 remains our baseline expectation, possibility of a front-loaded 50-bp cut has increased in recent weeks, reflecting softer inflation and commodity prices, and persistence of weak growth indicators," said Barclays Chief Economist Siddhartha Sanyal, as per the media report.
Moreover, expecting a 50 bps cut, bond yields touched the multi-year low of 7.73 per cent on Monday, before ending higher at 7.76 per cent due to profit booking.
Banks, however, also said that repo rate cut would not help much as for lending rates to come down, liquidity has to improve. For easing the liquidity, they said, RBI will have to either cut Cash Reserve Ratio (CRR) or increase the Open Market Operations (OMOs).