RBI likely to go for status quo at April review, say analysts

THE RESERVE Bank of India (RBI) is likely to opt for status quo, despite the March 2017 inflation number being much below the targeted level at next month’s policy review, analysts said on Monday.

“Although the CPI (Consumer Price Index) inflation is likely to significantly undershoot the March 2017 target, we do not expect a repo rate cut in the upcoming policy review in April 2017, with the Monetary Policy Committee firmly focused on the medium term target of 4 per cent,” rating agency ICRA’S managing director Naresh Takkar said.

Apart from the challenge of getting inflation down to four per cent which was flagged by Governor Urjit Patel at the last review, one of the biggest factors influencing the analysts seems to be the shift in the policy stance to neutral.

“The RBI surprised with a shift to a neutral stance in February. Rates will remain on hold at April’s review,” analysts at Singaporean lender DBS said.

As against a RBI target of 5 per cent, the CPI inflation for March came in at 3.7 per cent in February. It, however, is expected to rise further.

The medium term target for the RBI is to get inflation down to four per cent level.

Icra said it expects the CPI number to rise up to 4.5 per cent for March, as the favourable base continues to fade.

However, the agency’s call of a status quo is driven by “greater emphasis on bringing inflation in a durable manner to four per cent”.

DBS also said for the first time, the wholesale price based inflation has raced past the CPI and added that food inflation will be the most important aspect to watch out for.

The bank said also said the excess liquidity in the system is also a problem that needs to be addressed, but Icra said it does not see a tweaking in the cash reserve ratio.

“Policy rates have bottomedout and are likely to be held steady in the year ahead. The next move is likely to be a hike rather than a cut,” ICRA said.