The Reserve Bank of India (RBI) is expected to hold repo rates steady in its meeting on Dec 1, 2015. CPI Inflation has already edged up in the month of Dec to 5 per cent, as against 4.4 per cent in the month of Sept.
Rise in prices of food items is likely to keep inflation elevated along with a low base, which will force the central bank to maintain interest rates at current levels. The Reserve Bank of India surprised the markets by cutting interest rates by 0.50 per cent in its last policy meet.
Also, it could wait for the US Fed Reserve meet of Dec 16 and Dec 17, to see if there is a interest rate hike. Though it is highly possible that the US Fed hikes interest rates, its statement and intent of further hikes would be closely watched by the RBI.
The US Fed will in all probability hike interest rates, which could put the Indian rupee under pressure. Another reason would be that the recommendation of the 7th pay commission could drive consumption led demand and stoke up inflation once again.
All in all, we expect the Reserve Bank of India (RBI) to hold policy rates steady and take any action only after the Union Budget, and that too depending on the data coming in.