RBI may not cut rates despite fall in inflation

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SME Times News Bureau | 14 Mar, 2014
Despite fall in inflation in February, the Reserve Bank Governor Raghuram Rajan may hold the key rates in the forthcoming policy announcement on April 1, according to experts.

"We expect RBI to maintain interest rates status quo in the policy announcement next month to ensure that the decline in inflation continues before the monetary policy looks to promote growth," ratings agency Care said recently.

The consumer price index-based inflation, or retail inflation, for February slowed to 8.10 percent as compared to 8.79 percent in the previous month, government data had showed Wednesday.

Under Rajan, the Reserve Bank has raised rates three times or 75 bps to 8 per cent with an eye on the inflation number, the last one in January.

The central bank has also made its intentions of focussing more on the CPI number very clear. It has also set itself a target of bringing down the CPI to 8 per cent by January 2015 and get it down further to 6 per cent by 2016.

"Retail inflation is now already close to the RBI's target of 8 per cent for January 2015. Sustaining it at these levels however, will be crucial given the upward momentum in inflation of certain food categories," rating agency Crisil said in a note.

Credit Suisse said it expects no major actions till the September quarter, where the RBI will do a 0.25 per cent hike in the repo rate and follow it up with similar actions in the December and March quarters with the January 2016 target of cooling CPI inflation down to 6 per cent in mind.