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In the view of Mitul Kotecha, Senior Emerging Markets Strategist at TD Securities, the Reserve Bank of India is expected to leave the benchmark interest rate unchanged while waiting for the spike in the consumer price index (CPI) to dissipate.

Key Quotes:

“We expect the RBI to keep policy on hold, with the repo rate likely to be maintained at 5.15% on Thursday 6 February, albeit with an accommodative stance. At its December 5 meeting, the RBI unanimously decided to keep its policy repurchase rate unchanged at 5.15%.

At this meeting RBI highlighted space for further monetary easing, committing to maintaining an accommodative stance as long as it is necessary to revive growth.

We continue to expect RBI to prioritize growth, but wait until the spike in CPI dissipates before easing again.

The sharp rise in inflation over recent months has effectively ruled out a rate cut at this meeting; the 7.35% y/y CPI reading in December, well above the RBI’s 2-6% target was due in large part to a surge in vegetables and pulses.

RBI expects this to be transitory but may want to wait to see concrete signs that prices will drop before easing again. We think the RBI is likely to cut next at its April meeting.”