Despite RBI's accommodative stance, analysts expect long pause on rate cuts

Even though governor Shaktikanta Das asserted that a rate cut is not off his table and reiterated the accommodative stance, many analysts are of the view that rising headline inflation numbers may result in a longer pause by the monetary authority.

The move to suprisingly press the pause button on Thursday's review was driven by the rising inflationary pressure and gradual improvement in monetary transmission, domestic ratings agency Crisil said, adding RBI will be looking for clarity on the fiscal stance in the budget before further action.

In a surprise move, the RBI decided to hold the rates after delivering five consecutive rate cuts in 2019 in a unanimous decision by the six-member rate-setting panel. However, the governor later said the central bank is in a wait and watch mode and will look for data before yanking the rates further down.

Ruling out any rate cuts soon, SBI house economists said headline inflation is set to scale past 5.4 percent in the next few months, rendering a rate cut in February or even in April as a difficult proposition.

Analysts at Japanese brokerage Nomura also see RBI leaving the rates unchanged in February due to inflation worries, but it may act if the growth falls further.

However, all these analysts agree that a rate cut is on the table but are not the same page on the timing though. Analysts at Axis Mutual Fund said while the pause was a surprise, intentions of the RBI are "prudent" due to the weak macroeconomic conditions.

Bank of Baroda's chief economist Sameer Narang said the rate cut cycle will have to wait for inflation to be within the target range.

Meanwhile, economists at domestic brokerage Motilal Oswal said the pause increases the credibility of RBI's inflation mandate and there will be no rate cuts for at least one year or till inflation comes down to under 4 percent.