Street expects RBI to hold rates for the entire fiscal

As many as nine respondents said RBI would hold the repo rate at 8% till March-end, 2015

The current fiscal could well be the first in seven years when the Reserve Bank of India (RBI) decides to keep the benchmark repo rate unchanged, according to a Business Standard poll of 15 financial experts, just eight days before the monetary policy review

As many as nine respondents, comprising leading names in the public sector, private and foreign banks as well as several other financial intermediaries, said RBI would hold the repo rate at 8 per cent till March-end, 2015.

There are of course a few brave hearts who predict rate cuts ranging from 25 bps (four of the 15) to 75 bps (one) to 100 bps (one).

The repo rate, or the rate at which banks borrow from the central bank, was last kept unchanged for the entire fiscal of 2007-08 at 7.75 per cent.

Most explained this by saying though the RBI's new benchmark Consumer Price Index (CPI) inflation had fallen below 8 per cent, the target now was to achieve 6 per cent, which was a big challenge. According to the Urjit Patel committee report released in January 2014, CPI inflation should be brought down to 8% over a period not exceeding 12 months and to 6 per cent over a period of 24 months.

According to experts, the central bank may prefer to wait for clarity on the US Federal Reserve's interest rate actions after it is done with the taper. Another aspect which may weigh on the RBI's mind is the early outlook for monsoon in 2015.

"The 6 per cent target for CPI inflation will not be on the horizon at least till March. Besides, there is a need to factor in an eventual rate hike by the US Fed. That might be another reason which will push back rate cuts in India," said Indranil Pan, chief economist, Kotak Mahindra Bank.

Earlier this month at the end of a two-day meeting of the Federal Open Market Committee (FOMC) the US Fed released a quarterly economic and interest rate projection from its policy makers which suggested a faster pace of rate hikes than envisioned in the previous projections.

Last Monday, RBI Governor Raghuram Rajan said that inflation was still high and there was no point in lowering interest rates to see it (inflation) picking up again.

Some say they see possibility of a rate cut in the earlier part of the next fiscal. "There is a high possibility that the RBI may ease its stance in early fiscal 2015-16 culminating in rate cuts," said Manish Wadhawan, Managing Director and Head Interest Rates, Global Markets at HSBC India. According to Wadhawan, the RBI would like to see half way through the glide path of 6 per cent inflation target it has set.

There are a few optimists as well though they are in a huge minority. "We expect rate cut of about 25 basis points in the fourth quarter of this financial year. This is because inflation is expected to come down further which will give the RBI the room to cut rates. Also by then the borrowing programme of the government will also be clearer and this may give additional comfort to bring the rates down," said Arun Khurana, Head-Global Markets Business Operations, IndusInd Bank.