Analysts see RBI holding rates on steep fall in inflation

PTI Posted online: Wednesday, Jan 15, 2014 at 0000 hrs
Mumbai : With the more than expected fall in headline inflation to a five-month low of 6.2 per cent in December, various analysts are of the opinion that RBI is likely to hold policy rates in its upcoming monetary policy review scheduled on January 28.

"With the noise in inflation data (created by high and volatile prices of vegetables) likely to abate further, we do not expect the Reserve Bank of India (RBI) to raise the repo rate in its monetary policy review scheduled on January 28," rating agency Crisil said.

It, however, added the future course of monetary policy actions will depend in the magnitude of pick-up in core inflation and recommendations of the expert committee set up to revise and strengthen the monetary policy framework set up by the RBI.

Wholesale inflation declined to a five-month low of 6.16 per cent in December against 7.52 per cent reported in the previous month, mainly on account of cooling up of prices in food articles. Similarly, retail inflation too fell 9.87 per cent due to the same reason.

Reacting to WPI based inflation numbers, senior Icra economist Aditi Nayar said, "Given the weakness in consumer demand and contraction in industrial production in October- November, we expect the central bank to retain the repo rate in the upcoming policy review."

She, however, said the recent headline CPI and WPI have eased sharply on the back of correction in vegetable prices and the core inflation remains sticky.

Another rating agency, Care also echoed similar sentiment pointing out that no change in stance of RBI is expected in next policy review by RBI.

It, however, said, "The easing of inflation for the month of December provides some relief to the RBI. With the CPI and WPI inflation coming in at a lower level in December, RBI may contemplate a rate cut if the WPI and CPI figures continue to move downwards in the next two months.