RBI likely to keep rates unchanged

The RBI is unlikely to change its policy rate in its forthcoming monetary policy meeting next week.

According to experts, the macroeconomic factors have slightly improved since the last policy meet with a steep slide in global oil prices and appreciation in the rupee easing concerns about inflation.

“The situation has changed materially since then. Firstly, inflation has been softer than expected and will likely undershoot the RBI’s projections and, secondly, crude oil prices have cooled off 30 per cent. This not only improves inflation outlook, but notably eases the stress on the balance of payments and the rupee. In light of this, a hike is unwarranted in our view,” said analysts at Edelweiss Financial Services.

The October policy review happened in the background of a severe weakness in the local currency against the dollar and a sharp spike in global oil prices stoking concerns regarding inflation. This drove the RBI to change its policy stance to ‘calibrated tightening’ from ‘Neutral’ even though it left the rates unchanged.

“Indeed, the improved backdrop gives the RBI ample room to ramp up open market purchases to inject durable liquidity in the economy,” Edelweiss Financials added.

According to Kotak Institutional Equities’ Suvodeep Rakshit, the MPC will likely deliberate on the liquidity issue though it is not under the ambit of the MPC to address these issues completely.