On Wednesday, after a two-day meeting, the RBI is likely to reiterate concern about inflation, as the annual rate increased to 3.58 percent in October. "The recent rise in worldwide crude oil prices may sustain, especially on account of the OPECs decision to maintain production cuts through next year", RBI said. The central bank reiterated that it is maintaining a "neutral" stance in monetary policy.
The Reserve Bank of India will announce its monetary policy on Wednesday.
Consumer prices rose at a seven-month high of 3.6 percent in October and a Bloomberg Economics index shows core inflation - which strips out volatile food and fuel - is stubbornly above the central bank's 4 percent medium-term target. "Moderation in inflation excluding food and fuel observed in Q1 of 2017-18 has, by and large, reversed".
"There is a risk that this upward trajectory may continue in the near-term", it said. BSE banks constituting 10 key banking stocks traded at 114 points or 0.40 per cent lower at 28,345 level.
The RBI pointed to several factors that could push inflation higher.
In this scenario, it stressed, any adverse shock due to geo-political developments could push up prices even further. "Additionally, given the fact that the economy is seeing a cyclical recovery in growth, RBI would rather wait and watch on how these factors play out before moving rates in either direction", said Upasna Bhardwaj, vice-president and senior economist at Kotak Mahindra Bank.
The decision comes much to the expectation of experts and market-watchers who had predicted the stay in rates.
Most economists expect CPI inflation to trend close to or above 4% in the coming months. "However, incoming data versus the RBI's projections will remain key".
That has sparked renewed calls from some government officials for the RBI, which has cut the repo rate by 200 bps since January 2015, to trim again.