RBI seen holding rates, retaining dovish stance

The central bank’s monetary policy committee (MPC) cut rates by 135 basis points over five straight meetings last year, before surprising markets in December by holding the policy repo steady at 5.15 per cent due to growing concerns over inflation.

A poll of economists, conducted before the federal budget on Feb. 1, showed the central bank is expected to keep the repo rate unchanged until at least October, when it is seen resuming its easing path.

The RBI is now forecast to next cut rates by 25 basis points to 4.90 per cent in the October-December quarter, though some analysts reckon the central bank will keep rates on hold for longer. “Right now inflation is the main concern. We expect RBI to hold rates on Thursday and see them pausing in April as well,” said A Prasanna, economist at ICICI Securities Primary Dealership.

“I think the stance will remain accommodative and MPC will keep the option of one more rate cut open,” he added.

Data released after the MPC’s December meeting fuelled even more concern as annual retail inflation surged to 7.35 per cent in December, mainly driven by food prices, its highest level in more than five years.

The RBI is mandated to keep the headline inflation rate within the broad range of 2per cent-6per cent while it targets medium term inflation at 4 per cent levels.