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By Suvashree Dey Choudhury and Tony Munroe
MUMBAI, May 3 (Reuters) - The Reserve Bank of India is
expected to cut its policy interest rate by a quarter point on
Friday for the third time this year as it looks to bolster an
economy growing at a decade low and takes comfort from easing
While investors are hoping to hear a less-hawkish tone from
RBI Governor Duvvuri Subbarao, the RBI in its report on
macroeconomic and monetary developments on Thursday warned there
is "very limited" room for further policy cuts in the current
fiscal year, which started in April.
Headline wholesale price index inflation fell to
5.96 percent in March, the slowest in more than three years,
although the consumer price index remained high at 10.39
percent, a key worry for the central bank.
A Reuters poll last month found that 37 of 42 economists
expect the RBI to cut the repo rate by 25 basis
points to 7.25 percent, which would be a two-year low. The poll
found that most economists expect the RBI to leave the cash
reserve ratio unchanged at 4 percent, the lowest
Subbarao, whose five-year term ends in September, has been
known to spring a surprise, with some in the market hoping for a
50 basis point rate cut on Friday, or a quarter-point cut in the
CRR alongside lower interest rates.
Long a hawkish global outlier as it struggled to keep
inflation in check, the RBI began cutting interest rates in
April 2012 but that easing has done little to spur demand in
Asia's third-largest economy as bureaucratic red tape and
regulatory uncertainty have deterred capital investment.
Indian Finance Minister P. Chidambaram, who has been pushing
for pro-growth reforms and has been courting global investors,
has also called for further monetary easing to boost growth.
Investors will pay close attention to whether there is a
softening in Subbarao's tone at Friday's policy review, as they
look for clues on the chances for more rate cuts in coming
"The probability of more rate cuts is increasing due to the
persisting slow pace of growth, softer inflation, and favourable
commodity prices," said Siddhartha Sanyal, India economist at
Barclays, who said he expects a 25 basis point rate cut on
Friday and a similar cut by mid-2013 despite the tone of
Thursday's RBI report.
Indian GDP growth hit a near four-year low of
4.5 percent in the December quarter, while growth for the fiscal
year which ended in March is expected to be around 5 percent,
the weakest in a decade and far below the country's double-digit
India's current account deficit touched a
record-high 6.7 percent of GDP in the December quarter, also
squeezing the RBI's room to ease policy, although it is likely
to fall to about 4.4 percent in the March quarter on
higher exports and easing gold imports, a Reuters poll found.
(Editing by Simon Cameron-Moore)