The Reserve Bank of India (RBI) is likely to keep the repo rate, or the rate at which it lends to banks, unchanged at 6 per cent in its policy review on April 5 as economic growth recovers and inflation trends lower, says a report.
According to global financial services major UBS, the tone of the policy statement by the RBI’s monetary policy committee (MPC) is expected to “remain cautious while maintaining a neutral policy stance”.
The report noted that the CPI inflation has been lower at 4.4 per cent in February compared with the RBI’s projection of 5.1 per cent for the March quarter and that the central bank could retain its inflation projections with upside risk for the next financial year.
It also expects the MPC to say that economic growth is gathering momentum but that the nascent recovery needs to be “carefully nurtured” and growth put on a sustainable path. “In its policy review scheduled for 5 April, we expect the MPC to maintain the repo rate at 6 per cent,” UBS said.
“With growth trends improving and inflation surprising on the downside, we believe the balance of risks doesn’t require the MPC to change its stance,” it added.
Further, the financial services major estimates that headline CPI inflation will pick-up over the next few months and average 4.7 per cent year-on-year in 2018-19 compared with 3.6 per cent in the current financial year. It concluded by saying, “In our base case, we still expect the MPC to keep rates on hold in 2018-19.”