Mumbai: Foreign brokerage Morgan Stanley today said it expects retail inflation to rise to 8.5 percent in near term and cool off to 6.5 percent by December.
Given this outlook on the consumer price inflation (CPI), the brokerage expects the central bank to hold its key rates on April 1.
"In the context of CPI inflation remaining above 8 percent in near-term, we expect RBI to keep policy rates on hold at the next monetary policy meeting (on Apr 1)," it said.
Morgan Stanley said volatility in food prices and a base effect will result in the CPI inflation, which cooled down to 8.1 percent for February, to go up to 8.5 percent in the near-term.
It will, however, drop to 7.3 percent by September as the effects of the monetary tightening, corporate sector's focus on improving productivity, demand compression due to slower growth and lower commodity prices set in.
The number will come down further to 6.5 percent by December on the base effect, it said further.
"We see risks emerging to the food inflation outlook due to the recent weather-related concerns prompted by unseasonal rain and hailstorms in some parts of the country."
RBI is targeting to reduce the CPI inflation number to 8 percent by January, 2015 and narrow it down further to 6.5 percent by January, 2016.
The brokerage said seasonally favourable factors will improve the liquidity conditions in the economy and may result in some easing on the short-term rate front.
Unlike other analysts who see India's current account deficit (CAD) rising in FY 2015, Morgan Stanley said the gap will come down further to 1.6 percent of GDP from 1.7 percent level it is estimating for FY 2014.
The CAD, which rose to an all-time high of 4.8 percent in FY13, is narrowing drastically on the back of contraction in gold imports.
First Published: Friday, March 21, 2014, 20:35