RBI will keep repo and MSF rates unchanged in the policy announcement-CARE's expectation of policy stance

There finally was some respite in the economy with CPI and WPI both witnessing a significant drop in the month of December 2014. However, this deceleration in inflation figures occurs largely on account of a decline in food inflation. Core inflation however, is only marginally lower. Further, RBI in its previous policy review on 18th December 2013 anticipating low inflation figures had kept key repo and MSF rates unchanged. Hence, the reduction in inflation figures was not a surprise. Additionally, latent fuel inflation is likely on account of uncertainty regarding LPG cylinders and diesel prices. Hence, CARE's expectation is that the RBI will keep repo and MSF rates unchanged in the policy announcement on 28th January 2014. A rate cut can be expected only in the month of March if inflation maintains its downward trajectory in the coming months.

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