RBI will cut between 20 and 25 basis points: Dr Tirthankar Patnaik, Director, Religare Capital Markets Limited

ET Now: While it was the status quo policy from the RBI yesterday, what is it that the market is factoring in for the first quarter of CY13? What are your views?

Dr Tirthankar Patnaik: The expectations are between 25 and 50 basis points for the RBI to cut the policy rate at and most people in the market are looking forward also what would happen in the April to June quarter and beyond that.

So on our side, we believe that 50 basis points is what the RBI will come in the Jan to March quarter. Would they do it in Jan or would they wait until a mid-quarter policy or do it in March quarter policy, there are two data points that the RBI we believe will look at before taking that decision and this decision will also have a, these data points will also have a bearing on whether they go in with a 25 basis point cut and stagger it across two policies or have a 50 basis point cut.

So one point there is you will have the December inflation print. Inflation in December is likely to be higher given the low base effect of the last year and secondly, you on 31st will have the current account deficit numbers for the second quarter. Current account deficit numbers we have been pointing out should cross 5% for the second quarter and if one looks at the trade deficit for the third quarter, the numbers are likely to be worse going forward.

So that would have a bearing on the RBI's decision in terms of easing in the Jan to March quarter. Obviously we maintain 50 basis points and beyond that, we also believe that April to June also might have another 50 basis points cut. For the market though, anything beyond 25 should be considered a positive.