The Reserve Bank of India may keep interest rates “steady” in its monetary policy review later this month and a rate cut is likely only in the next financial year, according to an SBI research report.
With inflation easing, industry has clamoured for a reduction in interest rates. However, according to SBI, the central bank may keep rates on hold at its quarterly monetary policy scheduled on January 28.
Wholesale inflation declined to a five-month low of 6.16 percent in December as food article prices cooled, according to data released yesterday. Retail inflation eased to a three-month low of 9.87 percent.
“RBI may keep rates steady in January 2014 review and wait for more information, particularly on trajectory of food inflation, before deciding next course of policy action because core inflation has remained more or less flat in December 2013,” the report said.
Prices as measured by the Wholesale Price Index, gained at the slowest pace since July 2013, when inflation was 5.8 percent. In November, WPI increased 7.52 percent, the fastest pace in 14 months.
SBI said WPI inflation may settle at about 6 percent and Consumer Price Index inflation at about 9 percent by February.
CPI inflation of less than 9 percent is a possibility if WPI inflation contracts at a faster pace and as the election season gets closer.
“An overall assessment therefore suggests that a rate cut is likely only in the next financial year,” SBI said.
Meanwhile, industry chambers have pitched for lower interest rates to prop up growth. Industrial output in November contracted 2.1 per cent, the worst performance in six months.