The Reserve Bank of India is likely to hold rates in its next policy meet on January 28, Bank of America Merrill Lynch said in a report on Monday.
According to the global brokerage, the July tightening measures have pushed recovery beyond June 2014 and the falling vegetable prices are likely to pull down December Consumer Price Index inflation to 9.4 per cent.
"We continue to expect RBI Governor Raghuram Rajan to hold rates on January 28," Bank of America Merrill Lynch said in a note.
In the mid-quarter review of monetary policy on December 18, the Reserve Bank left key policy rates unchanged but said it will hike interest rates if inflation does not subside in line with the expected declining trend.
RBI had kept short-term lending rate unchanged at 7.75 per cent, while the cash reserve ratio remained at 4 per cent.
Since taking over as the RBI chief in September, RBI Governor Raghuram Rajan had increased the key rate by 0.50 per cent in two instalments.
"Weak 0.6 per cent November industrial growth should support our view that July tightening measures have pushed recovery beyond June," the BofA ML research report said adding that the FY14 growth is likely to clock an anaemic 4.7 per cent (and FY15 5.4 per cent).
The falling vegetable prices should pull down December CPI inflation to 9.4 per cent (from 11.2 per cent in November) and December WPI inflation to 6.5 per cent (from 7.5 per cent in November).
The December CPI inflation data will be released on January 13 and December WPI inflation on January 14.
According to the report, ‘Uncle Sam’ is recovering and this recovery is positive for India as higher US growth should push up export demand to narrow the current account deficit.
Withdrawal of US easing will likely stabilise oil and other commodity prices and also help narrow the current account deficit; and stable oil prices should also help contain 'imported' inflation pressures.
Image: RBI Governor Raghuram Rajan