Mumbai: Reserve Bank of India is planning to keep its interest rates on hold, as inflation eases steady at 8 per cent on April 1. Raghuram Rajan, Chief of RBI has hiked interest rates thrice since he took over in September, surprising markets on two of those occasions.
But the RBI is expected to hold fire next week, after February wholesale price inflation slowed down by 5 per cent for the first time in 9 months and retail price rises eased to a 25-month low.
Wholesale prices rose a slower than expected 4.68 per cent in February ,as food and fuel prices moderated while consumer price inflation eased for third straight month to a 25 month low of 8.10 per cent. "A status quo looks likely, given that the RBI is under no immediate pressure to take action given the dip in both CPI and WPI," said Vishnu Varathan, Economist at Mizuho Bank.
Investors' confidence has been revived in recent weeks on the likelihood that the elections will usher in a new government led by the opposition Bharatiya Janata Party, which widely perceived to be more business-friendly. Indeed, the rupee has been touching seven-month highs while the stock market has set successive records, with foreign investors particularly heavy buyers of shares.
Banking shares have led the gains on optimism about a looming recovery in the economy, which is expected to have grown at its slowest pace in a decade, and bets the RBI would keep interest rates on hold for now.
Despite the market euphoria in the run-up to the elections, analysts cautioned that inflation, high borrowing rates, weak industrial output and subdued demand are among the main economic risk facing the next government.
"We need a government which continues on the path of fiscal consolidation and if it (the new government) does that then there will be space for monetary policy easing," said Ashutosh Datar, Economist at IIFL.
