Reserve Bank of India seen holding interest rates on easing inflation rate

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The Reserve Bank of India will announce its monetary policy decision on January 28. The Reserve Bank of India will announce its monetary policy decision on January 28.
SummarySince becoming governor, Raghuram Rajan had embarked on a series of rate hikes to tame soaring prices.

The Reserve Bank of India will likely hold interest rates steady when it meets next week thanks to easing inflation and as it waits for more data, according to a Reuters poll of economists, who also predict better economic growth in India in the next fiscal year.

Since being appointed governor in September, Raghuram Rajan had embarked on a series of rate hikes to tame soaring prices -- cementing the central bank's hawkish stance.

But with softening food prices driving inflation lower recently, the RBI surprised markets in December by keeping rates unchanged.

The central bank will announce its policy decision on January 28.

The median consensus from the poll showed 45 of 50 economists expect the repo rate to be kept unchanged at the meeting and held steady until September before being cut by 25 basis points in the last quarter.

If the RBI does indeed follow through, that would signal an end to the current cycle of policy tightening.

The cash reserve ratio is seen steady at 4.00 percent through 2014 while the marginal standing facility rate will likely be kept on hold at 8.75 percent until the fourth quarter, when it is expected to be cut to maintain a 100 basis points gap with the repo rate.

"We expect the RBI to maintain its current policy while acknowledging upside risks to inflation next week," said Arun Singh, economist at Dun & Bradstreet.

"While overall headline inflation has fallen recently, there is a risk it could head higher since it is not being driven by manufactured goods, which can be controlled by monetary policy, but by the price of food which is largely affected by supply side rigidities."

The wholesale price index, used by the central bank to determine policy, has stubbornly stuck well above the RBI's commonly perceived comfort level of 5.0 percent since June last year. The latest print was 6.16 percent in December.

Weak infrastructure connecting farms to markets has led to tonnes of agricultural produce being wasted every day, leading to a shortfall of staple items and higher prices, affecting mostly the vast rural and impoverished population.

Economic growth, meanwhile, has languished at near decade-low levels, stoking fears of stagflation taking hold. Those concerns, though, failed to impress upon the central bank which maintained its tough stance on prices instead.

That focus is unlikely to change, especially with a RBI panel on Tuesday recommending a slew of changes at the

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