Rajan unlikely to cut rates on April 1

Even after a positive surprise on the retail inflation front, analysts on Thursday said they expect Reserve Bank Governor Raghuram Rajan to hold the key rates in the forthcoming policy announcement on April 1.

"We expect RBI to maintain interest rates status quo in the policy announcement next month to ensure that the decline in inflation continues before the monetary policy looks to promote growth," ratings agency Care said in a note.

Foreign brokerage HSBC said emergence of pleasing data and the likelihood of RBI holding its key rate on April 1, should not lead to believing that the rate tightening cycle is over.

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Official data released on Wednesday showed the consumer price inflation cooled down to 8.1 per cent for February as against the 8.79 per cent in January, while the index of industrial production came to a positive side in January, at 0.1 per cent after three months of continous decline.

Under Rajan, the Reserve Bank has raised rates three times or 75 bps to 8 per cent with an eye on the inflation number, the last one in January.

The central bank has also made its intentions of focussing more on the CPI number very clear.

It has also set itself a target of bringing down the CPI to 8 per cent by January 2015 and get it down further to 6 per cent by 2016.

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"Retail inflation is now already close to the RBI's target of 8 per cent for January 2015. Sustaining it at these levels however, will be crucial given the upward momentum in inflation of certain food categories," rating agency Crisil said in a note.

On the future trajectory of the monetary policy, brokerage Credit Suisse said it expects no major actions till the September quarter, where the RBI will do a 0.25 per cent hike in the repo rate and follow it up with similar actions in the December and March quarters with the January 2016 target of cooling CPI inflation down to 6 per cent in mind.

Its peer BNP Paribas also said even though there may have been some respite on the price rise front, the risks from inflation continue being elevated and the RBI will ‘retain a tightening bias for the foreseeable future.’

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"Industrial production came in better than expected, but growth remains low and the investment cycle weak," HSBC Chief Economist for India & ASEAN Leif Lybecker Eskesen said, adding "while this may keep RBI on hold in April, it is not given that the tightening cycle is over."

ING in a research note released on Thursday said "we expect RBI would prefer to wait to assess the underlying trends in inflation on a more sustainable basis and hence maintain status quo in policy rates for the rest of 2014."

Echoing similar sentiments, Citigroup said in a research note that the CPI target of 8 per cent by January 2015 seems easily attainable.

"As a result, we maintain our view of extended pause on policy rates and modest upturn in GDP to 5.6 per cent in FY15," it said.

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The RBI, which has maintained a hawkish interest rate regime to tame inflation, is scheduled to announce the next monetary policy on April 1. Industry has been demanding a cut in interest rates to boost economic growth, which has slowed to a decade-low level.

RBI Governor Raghuram Rajan had raised the key policy rate by 0.25 per cent to 8 per cent in the third quarter review of monetary policy in a bid to curb inflation.

After Rajan took over as RBI Governor in September, the apex bank increased the key policy rate three times by 0.25 per cent each.