RBI likely to hold rates in Tuesday's policy review
Mumbai: 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, citing inflation trending upwards, current nstability in markets and insufficient transmission as basis for their projection.
"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.
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.
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 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 central 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.
While announcing the fifth bi-monthly monetary policy review in December, RBI Governor Raghuram Rajan sought once again to nudge the commercial banks to cut interest rates.
He said since January last year, when the RBI started cutting its lending rates and easing its monetary policy stance, less than half of the cumulative policy repo rate reduction of 125 basis points has been passed on to borrowers by commercial banks.
"The median base lending rate has declined only by 60 basis points," Rajan said.
Investors in India's equity markets were seen to be cautious on Monday, ahead of the policy review.
The S&P BSE Sensex, which opened at 24,982.22 points, closed at 24,824.83 points -- down 45.86 points or 0.18 percent from the previous day's close at 24,870.69 points.
"Caution over RBI's monetary policy review and a weak rupee subdued investors' risk-taking appetite. Negative Asian markets and flat-to-negative European indices, too, dented sentiments," Anand James, co-head, technical research desk with Geojit BNP Paribas Financial Services, told IANS.
Vaibhav Agarwal, vice president and research head at Angel Broking, elaborated that markets ended in the red after trading in the positive territory for most part of the day.
"We expect RBI to maintain status quo in tomorrow's bi-monthly monetary policy. Although CPI has inched up, it remains within the RBI targets," he noted.
"Also, despite a weak IIP (Index of Industrial Production) data, we believe the RBI would follow a wait and watch approach and seek more clarity from the upcoming union budget, before taking a call."
Meanwhile, official data on India's infratsructure sector showed on Monday that growth of eight core sectors slowed down to 0.9 percent in December 2015 from 3.2 percent in the same month of the previous year, pulled down by lower production of crude oil, natural gas and steel.
The other core industries are coal, refinery products, fertilisers, cement and electricity.
The December production figures are, however, an improvement over November, which saw the worst performance in seven months with output of the eight core sectors falling by 1.3 percent.