RBI may hold rates steady

MUMBAI, Dec 04 (Reuters): Analysts expect India's central bank to support an economy that is losing momentum by leaving interest rates unchanged at a policy meeting on Wednesday, when just over a month ago most of them had predicted a hike.

Having resisted any temptation to jack up rates in October when the rupee was sliding to a record low against the dollar, the Reserve Bank of India (RBI) has been vindicated by the currency's subsequent recovery, and by waning inflationary pressures thanks to falling food and oil prices.

The rupee is now nearly six per cent off its low, and is expected to rally further as lower crude prices have also eased worries over India's current account deficit.

"We expect interest rates to be on hold until March," said A. Prasanna, head of research at ICICI Securities Primary Dealership in Mumbai.

"We also expect the tone of the statement to be dovish given inflation and growth momentum have softened, and the RBI will continue to keep infusing liquidity as bank lending growth needs to be supported to boost overall economic growth," Prasanna said.

Since embarking on a tightening cycle in June, the RBI has raised its policy repo rate by 50 basis points, with the last increase to 6.50 per cent made in August.

There are now clearer economic reasons to avoid going higher, analysts say.