No change in interest rates is likely over the rest of this fiscal, as the Reserve Bank is expected to adopt a 'wait and see' approach due to rising inflation and downside pressure on rupee, says a report.
According to BMI Research, headline consumer price inflation (CPI) is likely to head higher over the coming months, largely owing to rising food and housing prices.
"The Reserve Bank of India left its benchmark repo rate steady at 6.00 per cent in its October 4 monetary policy meeting, and we expect no changes to interest rates over the rest of the fiscal year," BMI research, a Fitch group company said in a note.
The report said the government's plans for fiscal spending to support economic growth along with farm loan waivers at state level, which could top Rs 3.2 trillion, pose significant inflationary risks that are likely to prevent the the RBI from adopting a looser monetary policy stance.
Additionally, the RBI is expected to keep interest rates on hold over the coming months in an effort to maintain the country's real yield advantage to prevent significant currency weakness due to capital outflows.
The rupee is currently hovering around Rs 65 level against the US dollar.
"Expectations of an economic recovery suggest that the RBI is likely to continue a 'wait-and-see' approach towards supporting growth, while rising inflation and a weakening rupee suggest that there is little room to loose monetary policy further," the report said.
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