RBI could keep rates steady for the sixth straight meet; statement in focus

Mumbai, 6 February (Reuters): India's key policy rates will likely be held steady on Thursday for a sixth straight meeting but investors are keenly watching to see if moderating core inflation and a fiscally prudent budget allows policymakers to signal a turn in the cycle.

All but one of the 60 economists in the 10 January–1 February Reuters poll expected the central bank to hold the repo rate at 6.50% at the conclusion of its 6 to 8 February meeting.

"It might be too soon to change the stance from a signalling perspective, as inflation remains above the 4%-target and the rate cut cycle is expected to start only from June/August," said Gaura Sen Gupta, an economist with IDFC First Bank.

"Therefore, we expect the RBI (Reserve Bank of India) to maintain the status quo on policy rates and stance."

The RBI has raised its key rate by a total of 250 basis points (bps) since May 2022 to tackle surging inflation, but has left it unchanged since February 2023 as price pressures moderated somewhat. Inflation has since stayed around the upper-end of its 2%-6% mandated range, well above its medium term target of 4%.

"The strength of the economy and still-elevated inflation suggest that the central bank will be in no rush to cut the repo rate," said Thamashi De Silva, assistant India Economist at Capital Economics.

"And at the margin, the RBI will prefer to remain on the sidelines in the build-up to and during the election to prevent any flare up of concerns over its independence."

A national election is due by May this year.

The annual retail inflation rose to 5.69% in December from November's 5.55%. Despite headline numbers staying above the 4% target, core inflation has been steadily declining, raising hopes for at least a change in policy stance to neutral.