Banks in India are expected to cut lending rates by up to 50 basis points by September as there is sufficient liquidity in the system, says a Bank of America Merrill Lynch report.
According to the global financial services major, sufficient liquidity should generate excess supply in the loan market and lead to reduction in lending rates.
"We continue to expect banks to cut lending rates by September atop 50 bps last fiscal," the BofA-ML report said.
It noted that the Reserve Bank is expected to ease liquidity to support recovery. "We estimate that the RBI will need to inject USD 50 billion of reserve money (including Rs 500 billion towards neutral liquidity) in FY17," it added.
"The loan market will likely see potential excess supply for the first time since 2013. This could lead to lending rate cuts of 50 bps by September," the report said.
Regarding the Central Bank's policy stance, the report said that the RBI is expected to cut rates 25 bps on August 9.
In April, RBI reduced policy rate by 0.25 per cent to 6.5 per cent -- lowest level in more than 5 years. While this was the first rate cut after a gap of six months, RBI has lowered the repo rate by 1.5 per cent since January 2015.
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