RBI Expected to Keep Rates on Hold

The Reserve Bank of India (RBI) is expected to keep its benchmark interest rate on hold at 7.50 percent at a policy review on Tuesday, while signalling that it could act swiftly to lower rates further if inflation stays within its target.  This year, RBI has already cut the repo rate twice, by 25 basis points each time, in a bid to bolster economic growth. Neither reduction took place during a regular policy review.

“Having cut rates in mid-March and mid-January, a pause may be warranted to reassess the outlook on inflation,” said Gaurav Kapur, senior economist at Royal Bank of Scotland in Mumbai.  The RBI rates on the back of easing inflation. The consumer price index rose 5.37 percent in February, marking a fifth consecutive month of staying within the RBI’s target of 2 to 6 percent.

Earlier-than-expected rainfall in parts of the country have pushed up prices of winter crops, such as wheat and pulses, which could make the RBI cautious over the outlook for inflation. The RBI’s wariness will also be heightened by any rebound in crude oil prices due to tensions in the Middle East.  Only nine of the 40 economists surveyed by Reuters expect the RBI to cut rates on Tuesday, but most expect at least a 25 bps cut by the end of June.