Mumbai: Rating agency ICRA Friday said concerns on inflation are ebbing and the Reserve Bank should slash the key rates at the forthcoming policy meet for better transmission of its moves by lenders.
"Consumer price inflation seems likely to undershoot the central bank's projection of 6 percent in January next, brightening the prospects of a repo rate cut of 0.25 percent during the ongoing quarter, provided that food prices remain in check," ICRA managing director Naresh Takkar said.
He said an early cut "may be warranted" as tighter liquidity conditions after the onset of the busy season would impede the process of transmission to bank lending rates.
The ICRA view is contrary to general expectations of a status quo at the bi-monthly policy announcement on August 4, as fears on inflation have not subsided.
He further said the CPI inflation which rose surprisingly to 5.40 percent in June will trend under 5 percent for July and August.
ICRA said the long period average deficit in rainfall stands at 7 percent till July 22, as against the 12 percent forecast by the met department for the entire season.
Apart from that the sown area for the summer crop is 9 percent higher than the average for mid-July and planting has been done in half of the acreage. The increase in the minimum support prices for grains has also been modest.
On the monetary transmission, it said lenders have been slow to pass the cumulative 0.75 percent cut by the RBI this calendar year.
"With systemic liquidity likely to tighten post the onset of the busy season for credit offtake in the third quarter, an upfronting of the next rate cut to August 4 policy may, to an extent, support a quicker transmission of monetary easing to bank lending rates," it said.
