RBI policy review: Know why the central bank may keep rates on hold

Know the reasons due to which the RBI is expected to keep rates unchanged at its bi-monthly monetary policy review on Tuesday.

Here are the key reasons due to which the RBI is expected to keep rates unchanged at its bi-monthly monetary policy review on Tuesday:

Inflation: RBI mostly tracks the Consumer Price Index-based retail inflation for its monetary policy decisions.

Rising for the third straight month, retail inflation climbed to 5 percent in October as against 4.62 percent in the same month a year ago due to costlier pulses and other food items.

At the same time, deflationary pressure eased a bit with WPI inflation rate moving up slightly to (-)3.81 percent in October as pulses, vegetables and onion turned costlier.

Falling rupee: Concern about selling by foreign investors sent the rupee to a two-year low on Friday. During November, it lost more than 2 percent against the US dollar, one of the worst performances in Asia, as foreign investors sold USD 1.5 billion in bonds and stocks.

US Federal Reserve: Although India has outperformed other emerging markets over the past two years, the country is not immune to Fed-related worries. Meanwhile, the Federal Reserve is widely expected to raise US rates in December for the first time in nearly a decade.

7th Pay Commission report: A recent pay hike to government employees and potential food price shocks could easily push up consumer price inflation from the 5 percent hit in October, analysts warned. The pay hike is also expected to impact India's fiscal health.

Interest rate transmission: Most of the banks have yet to pass the rate cut benefits to their borrowers.