July 6 (Reuters) - The Reserve Bank of India's rate-setting committee faces a quandary at Thursday's meeting: should it cut rates further to support India's rapidly deteriorating growth outlook or pause in the face of above-target inflation?
Around two-thirds of economists in a Reuters poll expect the RBI to cut the repo rate by another 25 basis points to a record low of 3.75% , spurred by forecasts of a 20% contraction in the economy in the June quarter and a 5.1% drop for the year through March 2021 .
RBI Governor Das's recent speech emphasizing the importance of reviving growth and preserving financial system stability also points to a cut , especially with Indian banks' bad debt ratio forecast to hit nearly 15% by March in a worst-case scenario .
Arguing against a cut is the spike in June CPI to 6.09%, which is above the RBI's 2%-6% target range . Tepid loan growth due to banks' reluctance to lend, despite a cumulative 250bps of rate cuts since 2019, is another reason to pause.
Traders will also be watching for guidance on future policy, revised inflation forecasts, a moratorium on loan repayments that is set to expire on Aug 31, and liquidity-enhancing measures.
USD/INR is in any case unlikely to break out of its 74.50-75.50 range due to the central bank's efforts to curb volatility.
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Reuters Poll: India economic recovery outlook: https://tmsnrt.rs/2COoyJY
(Krishna Kumar is a Reuters market analyst. The views expressed are his own)
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.