Finance Minister Arun Jaitley joins rate cut chorus

Indian Finance Minister Arun Jaitley has said he expects the country's apex bank to cut interest rate when it meets on April 5 for its first monetary policy review meeting for financial year 2016-17. It is in line with the broad consensus among bankers and analysts given the right signals from the government and receding retail inflation.

"I want what everybody wants," PTI quoted him as saying Tuesday, in response to a question on his expectations from RBI Governor Raghuram Rajan.

Analysts feel that by committing to rein in fiscal deficit at 3.9 percent of the gross domestic product (GDP) in 2015-16 and 3.5 percent in the next financial year while presenting Budget 2016-17, the government has done its job. Besides, it also reduced interest rates on small savings twice, in February and March this year, to align them with those on bank deposits. This is being seen as providing banks enough flexibility to lower deposit rates and thereby lending rates.

A benign retail inflation at 5.18 percent in February, in line with the RBI's target, is also seen as a positive trigger for the RBI to act. The expected rate cut could be in the range of 25 to 50 basis points (bps).

"On the rates front, a 25bp cut is largely factored in with few quarters also discussing the possibility of a more aggressive 50bp cut," said Radhika Rao, economist, group research at DBS Bank, in her note Tuesday.

Bank of America-Merrill Lynch also said that falling inflation will influence the RBI's decision to cut the policy rate. "A bit of good news is that our inflation indicator is tracking March CPI inflation at 5%, slightly lower than February's 5.2%," it said in a note Monday.

The current interest rate, also known as repo rate, or policy rate, is 6.75 percent. In 2015, the RBI had cut repo rate by 125 basis points, despite which the monetary transmission by lenders was only about 70 bps.