The Reserve Bank of India may keep interest rates “steady” in its monetary policy review later this month and a rate cut is likely only in the next financial year, according to an SBI research report.
With inflation easing, industry has clamoured for a reduction in interest rates. However, according to SBI, the central bank may keep rates on hold at its quarterly monetary policy scheduled on January 28.
Wholesale inflation declined to a five-month low of 6.16 per cent in December as food article prices cooled, according to data released on Wednesday. Retail inflation eased to a three-month low of 9.87 per cent.
“RBI may keep rates steady in January 2014 review and wait for more information, particularly on trajectory of food inflation, before deciding next course of policy action because core inflation has remained more or less flat in December 2013,” the report said.
Prices as measured by the Wholesale Price Index, gained at the slowest pace since July 2013, when inflation was 5.8 per cent. In November, WPI increased 7.52 per cent, the fastest pace in 14 months.
SBI said WPI inflation may settle at about 6 per cent and Consumer Price Index inflation at about 9 per cent by February.
CPI inflation of less than 9 per cent is a possibility if WPI inflation contracts at a faster pace and as the election season gets closer.
“An overall assessment therefore suggests that a rate cut is likely only in the next financial year,” SBI said.
Meanwhile, industry chambers have pitched for lower interest rates to prop up growth. Industrial output in November contracted 2.1 per cent, the worst performance in six months.
The RBI had kept key policy rates unchanged last month on expectations that wholesale and retail inflation would ease.
The central bank had increased the key policy rate (repo) twice between September and November to check inflation. The rate is currently 7.75 per cent.
