The Fitch group company, BMI Research in its latest report has said that the key policy rates may remain unchanged for rest of the fiscal year 2017-18, as the Reserve Bank of India (RBI) is likely to adopt a 'wait and see' approach due to rising inflation and downside pressure on the rupee. As per the report, retail Inflation, measured by consumer price inflation (CPI) is likely to head higher over the coming months, mainly due to rising food and housing prices.
The report has said that expectations of an economic recovery suggest that the RBI is likely to continue a ‘wait-and-see’ approach towards supporting growth, while rising inflation and a weakening rupee suggest that there is little room to loose monetary policy further. It also pointed out that the central bank is expected to keep interest rates on hold over the coming months in an effort to maintain the country's real yield advantage to prevent significant currency weakness due to capital outflows. It indicated that the rupee is currently hovering around Rs 65 level against the US dollar.
BMI Research has further stated that the government’s plans for fiscal spending to support economic growth along with farm loan waivers at the state level, which could top Rs 3.2 trillion, pose significant inflationary risks that are likely to prevent the central bank from adopting a looser monetary policy stance. Besides, the RBI left its benchmark repo rate steady at 6% in its latest monetary policy meeting.