Global brokerage Bank of America Merrill Lynch in a research note has said the Reserve Bank of India (RBI) is likely to hold rates in its next policy meet.
The central bank is scheduled to review the monetary policy on January 28.
“We continue to expect RBI Governor Raghuram Rajan to hold rates on January 28,” Bank of America Merrill Lynch (BofA-ML) said.
In its mid-quarter review on December 18, RBI had left key policy rates unchanged but said it will hike interest rates if inflation does not subside in line with the expected declining trend.
According to the brokerage, tightening measures have pushed recoverybeyond June 2014 and the falling vegetable prices are likely to pull down December CPI inflation to 9.4 per cent.
“Weak 0.6 per cent November industrial growth should support our view that July tightening measures have pushed recovery beyond June,” the BofA ML research report said, adding that the FY14 growth is likely to clock an anaemic 4.7 per cent (and FY15 5.4 per cent).
“The falling vegetable prices should pull down December CPI inflation to 9.4 per cent (from 11.2 per cent in November) and December WPI inflation to 6.5 per cent (from 7.5 per cent in November).”
December CPI inflation data will be released on January 13 and December WPI inflation on January 14.
According to the report, “Uncle Sam” is recovering and this recovery is positive for India as higher US growth should push up export demand to narrow the current account deficit.
Withdrawal of US easing will likely stabilise oil and other commodity prices and also help narrow the current account deficit; and stable oil prices should also help contain ‘imported’ inflation pressures.
Since taking over as the RBI chief in September, RBI Governor Raghuram Rajan had increased the key rate by 0.50 per cent in two instalments.
RBI had on December 18 kept short-term lending rate unchanged at 7.75 per cent while the cash reserve ratio remained at 4 per cent.