BofA-ML says RBI may hit pause button on April 1

Probably because inflation is expected to peak off and FY15 GDP growth is likely to be around 4.7 %

The Reserve Bank of India is likely to hit the pause button in its next monetary policy review on April 1, as inflation is expected to peak off and FY15 GDP growth is likely to be around 4.7 per cent, a Bank of America Merrill Lynch (BofA-ML) report said today.

According to the global financial services major, new harvest would douse agri inflation and economic growth level is also likely to fall short of the government's expectation making room for the Central Bank to be on pause.

"Incoming data support our call that inflation will peak off as the new harvest douses agflation," BofA-ML said in a research note adding that "our lead indicators are tracking December quarter growth and FY15 growth is likely at an anemic 4.7 per cent, slightly below the government's 4.9 per cent."

Wholesale inflation eased to a seven-month low of 5.05 per cent in January, on decline in the rate of price rise in food articles, mainly vegetables.

This is the second straight month of decline in wholesale price based inflation. The WPI was at 6.16 per cent in December.

BofA-ML has lowered its March 2014 WPI forecast to 5.6 per cent from 6.6 per cent earlier. It said monsoon would remain the swing factor.

"...The replacement of WPI with CPI - with its over 50 per cent food component - enhances the exposure of monetary policy to the vagaries of the weather. If the rains are normal, CPI inflation will likely stay below the RBI's 8 per cent-in-a-year-ahead target," the report said.

The decline in inflation figures is much on the expected lines of the Reserve Bank which had hiked key interest rates by 0.25 per cent in its monetary policy review last month.

The Reserve Bank factors both retail and wholesale price based inflation data in its monetary policy.

The RBI is scheduled to unveil its next monetary policy review on April 1.