Bank of America Merrill Lynch’s economists expect RBI Governor Raghuram Rajan to hold the key rates on January 28, when the next quarterly monetary policy announcement is made.
In a research note released today, they said that the anticipated weak industrial growth of 0.6 per cent in November should support their view that the July 2013 tightening measures have pushed recovery beyond June 2014.
They expect falling vegetable prices will pull down December consumer price index (CPI) inflation to 9.4 per cent (from 11.2 per cent last month) and December WPI inflation to 6.5 per cent (from 7.5 per cent last month) and support their claim that inflation is peaking.
The December CPI inflation data will be released on January 13 and December WPI inflation on January 14.
They expect money market liquidity to settle in repo mode till early March, although expenditure controls will likely push it to MSF (borrowings at a higher rate of 8.75 per cent) mode in spells.
BoAML’s economists are also confident that the INR will trade in Rs 60-65/USD band if the US dollar settles around 1.30/euro. They advise clients to watch the US dollar and India’s earnings.