The Reserve Bank will come out with its third quarter review of monetary policy on Tuesday amid expectations that it will maintain status quo because retail inflation, especially in food items, is yet to show definite signs of moderation.
“It would be quite a tough call for the RBI in the given scenario… I expect the RBI to maintain status quo,” HSBC country head Naina Lal Kidwai told the agency.
RBI has indicated earlier that its priority would be to rein in inflation, although India Inc has been pushing for cut in interest rates as a booster dose for economic growth.
In a bid to curb inflation, RBI in January raised the key repo rate by 0.25 per cent to 8 per cent.
Besides outlook on inflation, the central bank would also take into account the strengthening rupee and its impact on exports, Kidwai said.
Strengthening of the rupee against dollar in the past few days following inflow of foreign currency has put pressure on exports. In addition, unseasonal rains in March may end up stoking food inflation in the near term.
RBI will on Tuesday announce the annual monetary policy for the financial year 2014-15.
“In my view, RBI may go in for a pause this time,” Federal Bank managing director Shyam Srinivasan said.
According to Punjab National Bank chairman and managing director K R Kamath, the RBI action will depend on outlook on inflation.
The annual rate of inflation, based on the monthly Wholesale Price Index, was 4.68 per cent in February. Retail inflation, based on the Consumer Price Index, was at 25-month low of 8.1 per cent.
Morgan Stanley said volatility in food prices and the base effect will result in CPI inflation going up to 8.5 per cent in the near term and cool off to 6.5 per cent by December.
“We see risks emerging to the food inflation outlook due to the recent weather-related concerns prompted by unseasonal rain and hailstorms in some parts of the country,” it said.
According to SBI’s economic research department, the present economic situation does not warrant any rate hike.
Raghuram Rajan, who took charge as Governor of the central bank last September, raised the rates during his first policy announcement, rightly foreseeing a pressure on the inflation front. He increased it again in January – for the third time since he took charge – when the market was expecting a pause.
Even though the RBI has not formally adopted inflation targeting, it has gone public on targeting CPI-based inflation down to 8 per cent by January 2015 and further down to 6 per cent by January 2016, as per the recommendations of the Patel committee.