Even though wholesale price index (WPI) for March climbed to a three-month high of 5.7% and consumer price index stood at two-month high of 8.31% (CPI), interest rates are unlikely to rise in tandem, at least in the immediate term.
Bankers and economists were of the view that the markets did expect a spurt in WPI and CPI as there were supply-side constraints which now would need fiscal measures rather than monetary to contain rates. In February, WPI and CPI stood at 4.68% and 8.03%, respectively.
Inflation for food, beverages and tobacco rose to 9.1% in March 2014 from 8.6% in February 2014, led by perishable items such as vegetables and fruits, as well as protein items like pulses and milk. "The substantial month-on-month increases recorded by fruit (3%) and vegetables (1.4%) in March 2014 reflected the impact of weather-related disturbances on short-term supply-demand dynamics," said Aditi Nayar, senior economist at Icra in a statement.
"Food inflation, owing to adverse weather conditions predicted by various weather agencies, could be a cause for firmer rates in future,'' said a chief dealer at a bank."But then the Reserve Bank of India will await the new budget of new government before taking a call,'' he said.
"For the moment, I see the rates moving sideways and any imminent hike is out of the way," said Moses Hardings, group CEO and chief economist at Srei Infrastructure Finance.
In the secondary government bonds market, the 10-year benchmark yield of 8.33 G-secs, 2023, witnessed good buying support at 9.05% and selling around yields of 8.65-8.66%. The bonds ended firmer at around 8.95-8.97% as prices marginally firmed up.
Another dealer at a foreign institutional brokerage said the RBI will maintain its hawkish stand and will not tamper with key rates for the moment.
Stable external factors like steady rupee and crude do not warrant a hike because it would only be anti-growth, said Hardings.
The rupee has been hovering around 60.17-60.23 to the US dollar while crude in the last fortnight ranged between $106.50 and $108.16 a barrel.
"CPI is sticky and not coming down as expected and a large part of this rise is caused by a food prices,'' said another banker.
However, most expect the rates to ease once the new government comes in place and announces its budget for this fiscal. This would be around June.
"I do see rates easing from the third-fourth quarter of this fiscal," said Milind Barve, managing director, HDFC Mutual.