MUMBAI: The Reserve Bank of India (RBI) is likely to maintain status quo on policy rates on Thursday despite easing inflation. Repo rate currently stands at six per cent.The Monetary Policy Committee (MPC), during its first bi-monthly policy review for the current fiscal, is unlikely to change its stance from neutral to accommodative, as the members may flag uncertainty over inflation outlook, considering the volatile oil prices and also the unexpected fluctuation in food inflation, should purchase price of food grains and vegetables go out of whack.
To recall, inflation fell drastically in the recent months, owing to a severe dip in vegetable prices on account of excess supply. Prices are expected to remain soft in the next few months.
Headline inflation in February fell to a four-month low of 4.44 per cent and analysts expect it to lag behind the RBI’s projection of 5.1-5.6 per cent for April-September. Yet, the dominant view is that the central bank will restrain itself from altering policy rates.
“The upcoming MPC meeting holds significance in terms of the guidance the RBI has to offer. General market view is that of an extended pause. Market could also want to see the MPC’s reaction to the recent axe in government borrowing programme and its view on the fiscal thereof. Lastly, though our view is that of status quo, it would be interesting to see the MPC’s accompanying stance in the light of moderation in CPI domestically and its reaction to the recent global developments,” said Lakshmi Iyer, CIO-Debt & Head of Products, Kotak Mutual Fund.Though monsoon is predicted to be normal this year, a lot depends on farm output. Also, the risk of firming up crude oil prices remains high. With India importing over 80 per cent of crude oil, any sudden surge in prices could swell its current account deficit math.