The Reserve Bank may “neutralize” the monetary policy stance by June and cut rates from August this year, a Japanese brokerage said on Monday.

Pointing to soft core inflation ‘or price increases in commodities excluding food and fuel’ in the data released for December, Nomura said there is a need to turn policy towards an easier regime after the extended pause.

The brokerage reiterated its earlier view of expecting a rate cut from August and pegged the quantum of the cut at 1 percentage point.

“We expect rates to be cut by 1 per cent cumulatively from August, with the stance turning ‘neutral’ in the second quarter, with risks shifting to the downside first,” its analysts said.

The note said core inflation for December came in at 3.8 per cent, adding that the annual growth of super-core inflation fell below its estimate of 3 per cent, a “positive surprise”. .

For January, headline inflation is likely to ease to around 5 per cent, while core inflation is pegged at 3.5 per cent.

There is a need to move towards an easy regime, the note said, adding that the RBI may choose to ease liquidity, change the stance to neutral and cut rates as part of this.

“Overall, December CPI data was softer than expected, with increases driven by growth in some food categories. Core inflation remains largely contained and underlying measures suggest continued moderation,” it said, adding that there is calm ahead.

The note also said that even though growth is strong at the moment, there is a need to keep an eye on further risks.

(This story has not been edited by News18 staff and is published from a syndicated news agency feed – PTI)