RBI set to hold rates and retain hawkish bias
April 4 (Reuters) -The Reserve Bank of India is widely expected to leave its repo rate at 6.50% for the seventh straight meeting on Friday. The central bank is also likely to retain its hawkish bias as a strongdomestic economy and sticky inflation prevent any softening in stance.
India's inflation rose at a faster-than-expected 5.09% pacein February due to elevated food prices. While core inflation - estimated at 3.3%-3.37% in February - has been steadily declining, headline inflation remains abovethe central bank's medium-term target of 4%.
In itsMarch bulletin, the RBIblamed spikes in food prices for slowing the fall in headline inflation, while notingthat the winter easing of vegetable prices had turned out to be "shallow and short-lived".
India's weather office on Monday forecast more heat wave days during April-June, which would have an impact onthe agricultural sector. Hence the central bank will not let its inflation-fighting guard down, as Governor Shaktikanta Das indicatedin the minutes of the February policymeeting.
With India's economy growing a stellar 8.4% in the October-December quarter and expectations that GDP growth in the fiscal year to end-Marchcould be "very close" to or above 8%, the central bank can focus on fighting inflation with an appropriately hawkish hold.
USD/INR is likely to ratchet to record highs of 83.50-83.70 due to broad U.S. dollar strength and yuan weakness. Initial support is at 83.25-30 and only abreak below 83.00 weakens theuptrend.
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India's CPI excluding vegetable prices falls below 4% in Feb: https://reut.rs/49kuNOH
Reuters poll - Reserve Bank of India policy rate forecasts: https://tmsnrt.rs/4cu7JzS
India will soon be the world's third largest economy: https://reut.rs/3xiDX10
Krishna Kumar is a Reuters market analyst. The views expressed are his own. Editing by Sonali Desai
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