The RBI might hold rates in 2016 in fear of inflation
Dec 8, 2015, 15:03 IST
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The Reserve Bank of India might keep the repo rate unchanged in 2016. This is because as CPI inflation may remain above its target 5% by March 2017."With inflation expectations still elevated, we expect RBI to keep policy rates on hold in 2016 and instead focus on greater transmission," Nomura said in a report.
As oil prices, rural wages, negative output gap and MSP stabilize, the report expects underlying core CPI inflation to remain above RBI's 5% target in March 2017. Headline CPI inflation should rise above 6% due to higher housing allowances, it said.
In the fifth bi-monthly monetary policy review last week, RBI kept the repo rate unchanged at 6.75%.
"RBI will use the space for further accommodation, when available, while keeping the economy anchored to the projected disinflation path that should take inflation down to 5 per cent by March 2017," it had said in the policy statement.
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Image credit: Indiati