Divergent trends in core inflation (wholesale price index) versus consumer price index may prompt the Reserve Bank of India (RBI) to hike repo rate or at least maintain status quo on existing repo rate of 8%, bankers opined ahead of the central bank's monetary policy review on April 1.
Bankers, who did not wish to be identified, told dna that the opportunity was right for the RBI governor Raghuram Rajan to hike repo rate without the fear of any political interference for once, as the outgoing finance minister P Chidambaram will have no vetoing power, while the incoming government will take another two months to announce a new finance minister.
"The vacuum would help RBI to manage interest rates efficiently this time keeping in view it's declared stance of being data-centric when it comes to key rates," said a senior banker.
In February 2014, WPI rose to 3.15% as against the previous month's 3.02% while CPI eased marginally to 7.9% from 8.1%.
There was also scope for RBI to keep rates unchanged. However, given the climatic changes like unseasonal rains and hailstorm in certain pockets of Maharashtra that have destroyed over 83,000 hectares of crop, according to market estimates, and the possibility of El Nino affecting future crop production, possibilities of lower food production looms large.
It could also make the road ahead tougher for RBI if inflation starts inching up at the time when the new government takes charge.
Polls would be held in the country between April 7 and May 12 while the results would be announced on May 16.
Weather scientists have predicted signs of a 'monster El Nino' that increases the chances of a drought-like scenario across south Asia including India.
This, if true, could take the country for another round of high food inflation it witnessed in the recent past. From 10.09% in September 2013, CPI dipped to a low of 9.31% in October 2013 and then hit a new high of 11.16% in November 2013, forcing RBI to hike repo rates from 7.25% to 7.75% in September and October of the same year.
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