RBI expected to hold rates in Tuesday’s policy review

Mumbai, Jan 31 (IANS) With the RBI’s last monetary policy review of this fiscal coming up on Tuesday, analysts expect the central bank to keep interest rates unchanged as inflation trends upwards.

“Considering the near-term risks on CPI (consumer price index) inflation and the uncertainties around FY17 Budget, we expect the RBI to leave rates unchanged until the budget on February 29,” Citigroup said in a note.

It said the Reserve Bank of India was likely go for a post-budget easing of 0.25 percent in March or April 2016.

India’s CPI, or retail, inflation has been rising. As per data released earlier this month, annual retail inflation moved up further to 5.61 percent in December, from 5.41 percent during the month before.

The consumer price index numbers also showed that food inflation rose to 6.4 percent as against 6.07 percent in the month before.

In rural and urban areas, the annual inflation rates for food items were 6.41 percent and 6.31 percent respectively.

With food items, notably pulses and onions, continuing to remain dear, India’s annual wholesale inflation rate moved up for the fourth straight month to minus 0.73 percent for December, against minus 1.99 percent for the month before.

“The RBI meets on February 2 and we expect the benchmark rates to be kept on hold,” a DBS report said.

The bank last cut its short term lending rate in September by 50 basis points to 6.75 percent. In 2015, RBI reduced its repo rate cumulatively by 1.25 percent.

“The current instability in markets and insufficient transmission are further reasons why the RBI may not rush to cut the rate on February 2,” HSBC said in a report.

The RBI review is expected to direct the Indian equity markets in the upcoming week.

“The RBI decision should dominate sentiments next week, though the present uptrend may continue a while longer,” Anand James, co-head, technical research desk with Geojit BNP Paribas Financial Services, told IANS.

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