RBI holds fire for now but experts expect rate cut only by April 2015

**Mumbai:**Asexpected theRBI chief Raghuram Rajankept key policy rates unchanged on Tuesday but did hint at further easing by early 2015. RBI left the repo rate unchanged at 8 percent and added that RBI would continue to provide liquidity under the existing Liquidity Adjustment Facility (LAF).

Rajan said that a change in the monetary policy stance at this juncture would be ‘premature’ and if inflation continued its downward trajectory there could be a policy stance change early next year.

The RBI revised its CPI inflation target to 6 percent for March 2015 and said that the key uncertainty for inflation was the durability of upturn in the economy adding that the full outcome of north-east monsoon would determine the intensity of price pressures.

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Rajan said he expected inflation to retain momentum over the next 12 months with risks to January 2013 target remaining evenly balanced.

On the growth front, RBI maintained growth target for 2014-15 at 5.5 percent with the assumption that monsoon would be normal and there would be no adverse shocks.

Speaking to CNBC-TV18 C Rangarajan, former RBI Governor said that the credit policy was in line with estimates and RBI should have brought down the January inflation target down to 5 percent.

Nomura Financial Advisory said that they expected RBI to maintain status quo in the February policy and the first rate cut would be done only in April. Nomura expects RBI to cut rates by only 50 bps in 2015.

IIFL’s Founder, Nirmal Jain was more optimistic in saying that he expected RBI to cut rates in February. “RBI wants stable inflation before cutting rates and they will watch the December numbers closely,” he added.

Bank of America expects RBI to cut rates by 75-100 bps in 2015.

Rana Kapoor, MD & CEO at Yes Bank and Assocham President said “While the Reserve Bank of India has left policy rate unchanged in the fifth bi-monthly monetary policy; it has clearly opened the window for rate cuts to begin in the next review in Feb 2015 or possibly earlier.I see space for monetary accommodation to the tune of close to 100 bps cut over the course of next 12 months in FY2015-16.”