Rajan likely to hold rates on Tuesday: Icra

Expects a status quo on the policy rate in the upcoming policy review

Ratings agency Icra on Tuesday said it expects Reserve Bank of India Governor Raghuram Rajan to hold the key rates on April 1, as inflation had shown considerable signs of cooling and is sniffing at the desired levels now.     

“Consumer inflation eased to 8.1 per cent in February, close to the target of 8 per cent for the end of this calendar year as suggested by the Urjit Patel committee...Therefore, we expect a status quo on the policy rate in the upcoming policy review,” it said in a note.

Icra said the unseasonal rains and hailstorms witnessed early March, which may put pressure on the inflation front, will not immediately have a bearing on the monetary policy. Additionally, there are also fears about a poor monsoon which can have a negative impact on the inflation trajectory, the agency said.     

“At this stage, these concerns may be premature to necessitate a monetary response and instead warrant action from various levels of government in terms of preparedness to deal with the eventuality of an unfavourable monsoon,” it said.

Rajan, who took charge last September, raised the rates at his first policy announcement, rightly foreseeing a pressure on the inflation front and increased it again — the third time since he took charge — in January when the market was expecting a pause.

It can be noted that even though the RBI has not formally adopted inflation targeting, it has gone public on targeting consumer price inflation down to 8 per cent by January 2015 and further down to 6 per cent by January 2016, as per the recommendations of the Patel committee.