India’s central bank expected to cut benchmark interest rate by 0.25pc to support growth

WEB DESK: India’s central bank will cut its benchmark interest rate by a quarter-percentage point Friday on the back of easing inflation to support growth, some of the country’s leading fund managers who together oversee over $73 billion in assets said on Tuesday.

Axis Asset Management Co. expects the current easing cycle to end with the repo rate at 5.5 percent while Kotak Mahindra Asset Management Co. said the rate could go as low as 5 percent. The repo rate is currently at 6 percent compared with 6.5 percent before the easing started.

“A large part of the bond rally has happened,” Devang Shah, head of fixed income at Axis asset, who manages over $14 billion in assets, said at an event marketing the launch of “Where to invest” for Indian audiences. Investors can expect 8-9 percent returns in debt investments this year as against a 12 percent return last year, he said.

The Reserve Bank of India’s monetary policy committee concludes its three-day meet on Friday and economists expect to cut interest rates after recent data showed headline inflation slowing to 3.16 percent. The central bank has a medium term inflation target of 4 percent.

Excess cash in the banking system stands around 2.9 trillion rupees ($33.9 billion), the highest since November, amid the central bank’s liquidity infusion and record dividend payout to the government. The excess funds have pushed shorter yield down, with those on treasury bills to company bonds all trading near multi-year lows.

Indian central bank cuts rates to boost growth as tariffs take effect

The liquidity overhang has supported Indian stock markets which are trading not far from their record highs struck last year.

According to Nilesh Shah, CEO at Kotak Mahindra Asset, who oversees $58 billion, India remains the cheapest emerging market on a five-year horizon.

“The biggest worry is investors have got used to 20 percent returns,” he said.

Indian stocks have recovered sharply since President Donald Trump’s tariff shock in early April rising more than 10 percent from a low in April 7. Improving corporate earnings and India’s relative insulation to the US tariff threats have drawn global investors over the past two months.

Global funds have purchased Indian stocks worth about 43 billion this quarter, pushing the benchmark Nifty 50 index within 6 percent of a record high struck in September.

Nevertheless, the biggest worry remains a global inflation care caused by major central banks’ massive money printing over the years, said Sandeep Bagla, CEO at Trust Asset Management Co.