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Supported by falling inflation rates, the Reserve Bank of India (RBI) is widely expected to keep its key lending rate, the repo rate, unchanged at 8% in its monetary policy review on Tuesday, temporarily warding off fears of an immediate hike in consumer and home loan installments.
India’s wholesale inflation rate eased to a nine-month low of 4.68% in February from 5.05% in the previous month on plunging vegetable prices, bringing respite for the UPA government ahead of national elections that begin next month.
Retail inflation — a more realistic index as it captures shop-end prices — eased to a two-year low of 8.10% in January from 8.79% in the previous month.
The RBI has raised lending rate three times in the last six months, to tame inflation by cooling demand. This has raised home loan EMIs. Experts, however, expect the rate-hiking cycle to be kept on hold for now.
“Given any lack of significant drops in the core WPI as also the core CPI, we do not expect any change in stance from the RBI at its monetary policy meeting on April 1 and also maintain a status-quo on rates,” said Indranil Pan, chief economist, Kotak Mahindra Bank.
A majority of respondents of an economic outlook survey of industry association Federation of Indian Chambers of Commerce and Industry (Ficci) also felt the central banks would keep rates unchanged in the policy announcement on Tuesday.
Analysts will be keeping a close eye for forward looking cues on the RBI’s outlook on the currency and the overall growth prospects.
A sharply rising rupee—it closed at an eight month high of 59.91 to the dollar on Friday—has also presented the Reserve Bank of India (RBI) with a dilemma. A strong rupee will aid its battle against inflation, but makes India’s exports pricier in the world market.
This has likely prompted the central bank to buy dollars to the tune of about $3 billion this week to shore up its forex reserves as well as stem the rupee’s rise to help exports, foreign exchange traders told HT.