In his fight to lower stubbornly high inflation, RBI chief Raghuram Rajan has hiked interest rates thrice since he took over in September, surprising markets on two of those occasions.He may surprise once again if he want to shake of the core inflation, by increasing rates now given the buoyant state of the markets.
RBI is expected to hold fire next week after February wholesale price inflation slowed to below the central bank's commonly perceived 5 percent comfort level for the first time in 9 months and retail price rises eased to a 25-month low.This drop is it temporary or a genuine one will be seen when the april figures do come out.
The RBI may keep the repo rate unchanged at 8.0 percent until at least October while the cash reserve ratio won't be changed from 4.0 percent until July 2015 at the earliest - the end of the forecast horizon.
A status quo looks likely, given that the RBI is under no immediate pressure to take action given the dip in both CPI and WPI.
Indeed, the rupee has been touching seven-month highs while the stock market has set successive records, with foreign investors particularly heavy buyers of shares.
Banking shares have led the gains on optimism about a looming recovery in the economy, which is expected to have grown at its slowest pace in a decade, and bets the RBI would keep interest rates on hold for now.
Despite the market euphoria in the run-up to the elections, analysts cautioned that inflation, high borrowing rates, weak industrial output and subdued demand are among the main economic risk facing the next government.