Bankers expect the RBI to maintain status quo on interest rates at its monetary policy review meeting on April 1 as retail inflation is yet to show definite signs of slowing down.
The RBI has been tracking consumer price inflation closely at its previous monetary policy reviews. The CPI had hit a high of 11.16% in November and has subsequently cooled to 8.1% in February.
?I am expecting a pause this time in the monetary policy review,? said SS Mundra, CMD, Bank of Baroda.
Bankers say though the CPI has cooled in February, it is still above the RBI?s comfort level. ?Thus, the central bank is likely to keep policy rates unchanged and wait till CPI inflation drops further,? said M Narendra, CMD, Indian Overseas Bank.
Though the RBI, in its third quarter review of monetary policy, raised the key repo rate by 25 bps to 8% in a bid to curb inflation, there has been no transmission in interest and most banks have kept their base rates unchanged.
?Rate hikes and policy rates are intended to be directional. Transmission is a function of the deposit costs. So, we need to dispel the notion that as soon as there is a rate hike or cut, there will be immediate transmission,? said Aditya Puri, MD& CEO, HDFC Bank.
RBI governor Raghuram Rajan has raised the key repo rate thrice since taking over the reins of the apex bank. In January, the repo rate hike was seen as a surprise move as the market was expecting a pause. Experts say worries like unseasonal rains and core inflation can make the situation tricky for the RBI.
?The reason why the tightening cycle may not be over is that core inflation is far too high and sticky. Inflation expectations remain elevated, and we do not see sufficient slack in the economy to bring them down notably. The lack of structural reform and infrastructure investment has done serious damage to the economy?s growth potential.? HSBC Bank said in a note.
