Given this outlook on the consumer price index-based inflation, the foreign brokerage said it expects Reserve Bank of India (RBI) to hold key rates in its next monetary policy review due on April 1.
In the context of CPI inflation remaining above 8 per cent in near-term, we expect RBI to keep policy rates on hold at the next monetary policy meeting on April 1st.Volatility in food prices and a base effect will result in the CPI inflation, which cooled down to 8.1 per cent for February, to rise to 8.5 per cent in the near term.
It will, however, drop to 7.3 per cent by September as the effects of the monetary tightening, the corporate sector's focus on improving productivity, demand compression due to slower growth and lower commodity prices set in.
The number will come down further to 6.5 per cent by December on the base effect, hopefully.
The RBI is targeting to reduce the CPI inflation number to 8 per cent by January, 2015, and narrow it down further to 6.5 per cent by January, 2016.