The Reserve Bank of India is widely expected to cut interest rates when policymakers meet on Friday, seeking to revive the economy after growth hit a decade-low in the fiscal year 2012-13, as inflation started to slow.
The central bank is seen cutting the key rates by a quarter-point, while keeping the reserve requirement rate steady at 4 percent, which is the lowest since 1976. Governor Duvvuri Subbarao will be presenting his final annual monetary policy statement, as his term is set to end in September 2013.
The bank has cut the rates by 25 basis points each in January and March. The repo rate now stands at 7.50 percent and the reverse repo rate is at 6.50 percent.
Falling global commodity prices is expected to reduce the pressure on the country's current account deficit. This, coupled with benign inflation, gives ample room for the bank to reduce the rates.
Inflation, based on the wholesale price index, eased to 5.96 percent in March, its lowest level in more than three years. At the same time, the economy is estimated to have grown by around 5 percent in fiscal 2012-13, which is the weakest in a decade.
The Prime Minister's Economic Advisory Council Chairman Chakravarthy Rangarajan said last week that India's economic slowdown appears to have bottomed out and growth is expected to gain steam in the current fiscal year.
The government panel forecast the gross domestic product to grow 6.4 percent in 2013-14, up from 5 percent last fiscal. Rangarajan also indicated that the estimate for 2012-13 may be revised up.
The current account deficit is seen narrowing to 4.7 percent of GDP in 2013-14 from an estimated 5.1 percent in 2012-13. Headline wholesale price inflation is expected to be around 6 percent in fiscal 2013-14, according to the panel.
The International Monetary Fund forecasts India to grow 5.7 percent in 2013 and 6.2 percent the next year. Yesterday, the World Bank projected 6.1 growth for the current fiscal and 6.7 percent in the financial year 2015.
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