RBI may hold interest rates steady at policy meet next week

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RBI may hold interest rates steady at policy meet next week
It's always been difficult to read the mind of Raghuram Rajan, the RBI Governor, who took charge at the country's central bank last year.

When it was anticipated that he would hold rates steady, he has hiked them in the past and when he was expected to hike rates, he kept them steady.

As we head into the Monetary Policy Meet of Jan 28, the Reserve Bank of India (RBI) is expected to keep repo rates (rates at which it lends money to banks) steady.

The one reason for this is the lower than expected inflation data for December. Both, CPI and WPI inflation reading for December has come in lower than expected. In fact, WPI inflation for Dec at 6.16 per cent, surprised analyst who had largely expected a WPI reading of around 7 per cent. A sharp drop in food inflation, has pushed WPI and CPI inflation numbers lower.

With inflation trending lower and industrial growth slumping, it's likely that the RBI would hold rates. In fact, there has now been optimism that the RBI may even cut rates at its policy meeting next week.

However, only recently, the RBI governor has said that inflation a "destructive disease" that was forcing the bank to keep interest rates high.

This has poured water on any hopes that may have emerged of an interest rate cut. The RBI might also want to wait for the US Federal Reserve Open Market committee (FOMC) slated later the same day and would do better to hold interest rates.

It's almost certain that the RBI would hold interest rates steady, but, in the past, the country's central bank has always surprised. Of course, borrowers and industrialists would prefer a pleasant surprise of cut in interest rates, rather than a hike.


Read more about: rbi, monetary policy, wpi, cpi inflation, fomc
Story first published: Saturday, January 25, 2014, 11:02 [IST]
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