The Reserve Bank will hold the rates for the remainder of the fiscal year ending March 2019 and is likely to go for 'measured hikes' in FY20 as inflation inches up, Singaporean lender DBS has said.
Decision on rates will be majorly influenced by the movement in oil prices and also the currency, which were termed as 'wildcards' by its house economists.
In a report that comes days after the headline inflation print eased to a surprising 3.31 per cent for October, the lender lowered its consumer price inflation (CPI) expectations for FY19 to 4 per cent from 4.4 per cent earlier.
It said the price rise scenario will go up to 4.2 per cent for FY20, which may prompt the RBI to go in for a hike.
"The RBI is likely to get the leeway to hold the rates unchanged this year owing to the below target inflation. We pencil in measured hikes in FY20 to contain core pressures, with oil and currency direction seen as wildcards," it said in the note.
The lender said inflation is averaging at 4.2 per cent for the first seven months of the fiscal year and points out to lower procurement of food crops by the government through the minimum support price (MSP) mechanism. The increase in inflation expectations next fiscal will be largely driven by food, it said.
(with news agency inputs)