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Experts see RBI keeping rates unchanged as inflation indicators rise

Apart from retail inflation, the other key data point for RBI's action is the GDP growth print due later this month

Press Trust of India  |  New Delhi 

RBI, reserve bank of India

Stronger food and fuel pushed up headline to a seven-month high in October and accordingly, the Reserve Bank is expected to stay on hold in its upcoming policy review meet next month, a majority of experts believe.

Costlier food items, particularly vegetables, drove retail in October to a seven-month high of 3.58 per cent.

Retail inflation, a key input for RBI in setting the key interest rate, has been rising consistently since June amid a slowdown in factory output measured by the Index of Industrial Production (IIP).

Apart from retail inflation, the other key data point for RBI's action is the print due later this month.

"Given the rise in headline and steady core inflation, we do not expect the RBI to ease further in the December monetary policy meeting," said in a research note.

Japanese financial services major also believes that HRA and GST effects are to be blamed for higher underlying momentum in and accordingly, the Reserve Bank is expected to stay on hold through 2018.

"Given higher oil prices, likely above-4 per cent in coming quarters and risks of a fiscal slippage, we expect the RBI to stay on hold through 2018, including at the December 6 policy meeting," said in a research note.

BofA Merrill Lynch, however, believes a December rate by by the RBI is still on the table.

"On our part, we continue to expect the RBI (monetary policy committee) to cut (rate) on December 6 to signal a bank lending rate cut, before the 'busy' October-March industrial season intensifies, to support recovery," said in a research note.

It further noted that the time is ripe for banks to cut lending rates with sufficient liquidity emanating from RBI forex intervention as well as bank recapitalisation.

The Reserve Bank of India, in its policy review meet on October 4, kept benchmark interest rate unchanged on fears of rising while lowering forecast to 6.7 per cent for the current fiscal.

First Published: Tue, November 14 2017. 13:23 IST
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