New Delhi: The Reserve Bank of India is expected to keep its key interest rate steady at 8 per cent on April 1, as inflation has eased.In his fight to lower stubbornly high inflation, Raghuram Rajan,RBI chief has hiked interest rates thrice since he took over in September.
But the RBI is expected to hold fire on Tuesday,after February wholesale price inflation slowed to below the central bank's commonly perceived 5 percent comfort level for the first time in 9 months and retail price rises eased to a 25-month low.
"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, an economist at Mizuho Bank.
Wholesale prices rose a slower than expected 4.68 per cent in February, as food and fuel prices moderated. Consumer price inflation also eased for third straight month to a 25-month low of 8.10 per cent.
Investors' confidence has been revived in recent weeks on the likelihood 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, an economist at IIFL.
