Analysts see Rajan holding rates on Dec 2

The Reserve Bank is likely to keep key policy rates unchanged in the upcoming monetary policy review next week and may cut rate only next year, analysts at ratings agencies and brokerages said today.

Governor Raghuram Rajan will unveil the fifth bi-monthly monetary policy review on December 2.

"We believe that RBI is likely to keep policy rates on hold on December 2. We assign a very low probability to a rate cut in that meeting," Morgan Stanley said in a report.

Domestic rating agency Care Ratings too concurred the view, saying Rajan will go for a status quo on rates at next week's policy review, even though inflation is trending down.
 

"While a rate cut would help to assuage sentiment, the RBI may choose to defer the decision for the next review," Care said in a note.

Morgan Stanley said the key thing to be watched in the policy would be the central bank's language regarding its comfort about achieving its inflation target according to its pre-guided glide path, and in turn, the implications of timing of the first rate cut.

The Reserve Bank has set a glide path of retail inflation or CPI at 8 per cent by January 2015 and 6 per cent by January 2016.

The consumer price inflation is on downward trajectory largely due to base effects and the RBI will see through it.

The CPI inflation cooled to 5.52 per cent for October, a multi-year low considering that it had been hovering at the double-digit mark for a long time. The RBI is targeting to get the CPI at 8 per cent by next January and down to 6 per cent by January 2016.

With inflation coming down, calls for a rate cut have been growing stronger. Those pitching for a rate cut include corporate chieftains as well as Finance Minister Arun Jaitley, who wants to deliver results on growth.

Care Ratings said the decline in inflation for five consecutive months "poses a strong case" for a rate cut, but reiterated that this is due to the base effect.