The Reserve Bank of India logo is pictured outside its head office in Mumbai
The Reserve Bank of India (RBI) logo is pictured outside its head office in Mumbai, on 25 January 2011.REUTERS

The Reserve Bank of India (RBI) governor Raghuram Rajan is expected to announce a 25bps cut in repo rate at the policy review meeting on 2 February, putting an end to the current rate-cutting cycle, according to a global brokerage firm.

A rate cut next week is likely as inflation may meet the RBI's target of under-6% by January 2016, said Bank of America Merrill Lynch (BofA-ML) in a research note.

"We continue to expect a final 25bp RBI repo rate cut on February 2. That said, the RBI is approaching the end of its rate cutting cycle. The repo rate, at 6.5% then, would be well below the average CPI inflation rate of 7%," said the brokerage firm.

At the September meeting last year, RBI's Rajan had announced larger-than expected rate cut of 50 bps, taking the overall reduction in lending rate to 125 bps in 2015.

BofA-ML cited "compelling reasons" for a rate cut by the central bank on Tuesday.

"First, inflation should meet Gov Rajan's under-6% January 2016 mandate. Food prices are peaking off in January. Second, growth remains weak. Third, a RBI rate cut will support INR by attracting FPI equity inflows into rate sensitives and FPI G-sec inflows in search of capital gains. Fourth, the fiscal deficit is well under control," it said.

The firms expected the consumer price index (CPI) to stay around 5-6% in the next fiscal year.

It noted RBI reaching its inflation target of 5% in 2016-17 will depend on the El Nino phenomenon, the impact from implementation of 7th Pay Commission recommendations and movement in crude oil prices.

BofA-ML's lead indicators are forecasting a 5% growth in gross domestic product (GDP) for the December quarter as per the old series of calculating GDP growth.

"Even if Arun Jaitley retains the 2016-17 fiscal deficit at 3.9 per cent of GDP, like FY16, instead of cutting it to the pre-committed 3.5 per cent, it will be well below the 4.8 per cent average since 2000," the report said.