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The Reserve Bank is likely to maintain a status quo on policy rates in its monetary policy review later this month amid sharp depreciation in rupee and inflationary pressure, says a report by global research firm Dun & Bradstreet.
According to the report, once the inflationary pressure abates and the rupee stabilises, the Central Bank's focus may shift towards promoting growth by easing policy rates.
"The domestic economy is at a crucial juncture with respect to the inflation rate, exchange rate, industrial growth and the monetary policy," said Arun Singh, Senior Economist, Dun & Bradstreet India.
Though a large number of factors like contraction in industrial growth, subdued investment activity, lower trade deficit and continued weakness in automobile sales ideally warrant a rate cut by the RBI in its forthcoming policy meet, the Central Bank may maintain a status quo, the report said.
"The vulnerability of the rupee and the rising upside risk on inflationary pressure may prompt the RBI to go into the pause mode with respect to interest rates in the near term," said Singh.
The RBI is scheduled to hold its first quarter monetary policy review on July 30. The industry has been demanding a cut in key policy rate to boost economic activities.
However, once the inflationary risk abates, RBI's focus may shift towards promoting growth by easing policy rates, the report added.
In the near term, strong depreciation of rupee along with rising global crude oil prices is likely to keep inflation from moderating. D&B expects the WPI inflation to remain in the range of 4.7-4.9% during July 2013.
However, a favourable start to the monsoon season can keep a check on food prices and help the policymakers in fighting the headline inflation going forward, it added.
