RBI likely to keep rates on hold on Tuesday

The Reserve Bank of India is expected to keep policy rates on hold in its monetary policy meeting scheduled on June 7, Tuesday. The Central Bank will maintain a wait-and-watch move to assess the ongoing and upcoming global and domestic events amid scrutinizing its past policy measures. Moreover, a higher inflation coupled with the late outburst of monsoon this year needs to be addressed properly.

The RBI is seen to reiterate the results of its past policy decision while maintaining an accommodative stance, in an attempt to move the liquidity position towards a neutral zero over the medium term.

The central bank had eased policy rates in its last policy meeting in April, cutting down repo rate to 6.50 percent. It will stick to gauge the 5.4 percent inflation in April and whether the impact of a disinflation is likely to continue.

Further, the pending decision of the Federal Reserve on June 14-15 whether to stay pat or raise interest rates, along with the June 23 United Kingdom referendum on Brexit are two most important instances which are likely to weigh on the RBI’s decision.

While, the April inflation figures hinted at rising food prices, especially for vegetables, fruits, pulses, meat and fish, the CB would prefer to await the arrival of monsoon to check food prices. Probably post that, we can watch Governor Raghuram Rajan making a move.

"We expect the CPI inflation trajectory to glide towards the 5 percent mark by end-FY2017," said Kotak Securities.

However, Governor Rajan will have a host of global events in the next six months to keep a watch over to decide on the next move. Meanwhile, markets shall remain tilted towards the RBI’s path of liquidity management during the FCNR(B) redemption phase in September-November.

"We expect a deficit of around Rs650 billion to be created due to FCNR(B) redemptions along with seasonal pick up in CIC, and some curbs in government spending," the brokerage added.