RBI Likely to Keep Rates Steady on Tuesday

The Reserve Bank of India (RBI) on Tuesday is likely to keep key interest rates unchanged and is expected to remain status quo till next year, according to a Reuters poll. Food inflation and a poor monsoon are seen as the driving factors behind RBI's pause.

Nearly all the 43 economists surveyed by Reuters expect the RBI to keep repo rate- the rate at which the central bank lends short-term money to banks- unchanged at 8 per cent.

Although both wholesale price inflation (WPI) and consumer price inflation (CPI) eased in June, some forecasters have warned that inadequate rains could lead to higher food inflation.

However, concerns that India could face its first drought in five years have abated after the monsoon deficiency narrowed to 23 per cent at the end of July. But with monsoon still being below normal, there are fears that food inflation may see a spike in the coming days.

"Even though the headline WPI and CPI have eased over the last few months, and the intensity of monsoon rains has picked up after a weak start, rainfall-related concerns persist as a source of risk for the inflation outlook," Aditi Nayar, senior economist, ICRA said.

RBI Governor Raghuram Rajan has time and again said that containing inflation is the central bank's top priority.

The country's largest lender State Bank of India (SBI) too believes that RBI will not tinker with rates on Tuesday. "I think status quo (in policy rate) is more likely," SBI chief Arundhati Bhattacharya said.

The RBI is targeting retail inflation of 6 per cent by January 2016. Inflation, measured by the consumer price index, eased to 7.31 per cent year-on-year in June. Economists believe the target is tough and does not give the central bank room to cut rates.