RBI to keep rates on hold as CPI inflation to rise 4.7% in FY19: Report

Following easing of retail inflation in Feb, there's industry clamour for rate cut next month to maintain growth momentum

CPI inflation is expected to rise over the next few months and average close to 4.7 per cent in 2018-19, driving Reserve Bank to keep key policy rates on hold in the coming financial year, says a report.

According to Swiss brokerage firm UBS, the headline CPI inflation may average close to 4.7 per cent in 2018-19 (as against 3.6 per cent estimated in 2017-18).

"In our base case, we still expect the Monetary Policy Committee (MPC) to keep rates on hold in 2018-19," the report authored by Tanvee Gupta Jain, Economist at UBS Securities India, said.

Jain however noted that there might be a pre-emptive 50 bps hike over the next 12 months to ensure macro stability.

As per the report, the key risks to the base case CPI inflation forecast include higher minimum support prices (MSPs), global crude oil prices strengthening further and populist spending in the run-up to 2019 general election.

If these risks materialise, "we do not rule out a pre-emptive 50 bps hike over the next 12 months to ensure macro stability risks are contained," Jain added.

As per Central Statistics Office (CSO) data, retail inflation measured in term of Consumer Price Index fell to a four-month low of 4.44 per cent in February on cheaper food articles and lower cost for fuel.

Retail inflation was 5.07 per cent in January. In February 2017, however, it was 3.65 per cent.

Following the easing of retail inflation in February, there is industry clamour for a rate cut by RBI next month to maintain growth momentum.

The central bank's next monetary policy review is scheduled for April 5. It had kept the policy rate unchanged in its February meeting on fears of inflation.