By Ira Dugal
MUMBAI, April 6 (Reuters) - The Reserve Bank of India's
decision to keep interest rates unchanged, after a nearly
year-long hiking cycle, may extend even though the central bank
described its move as a pause and not a pivot, said one of the
few analysts who predicted the surprise decision.
A Prasanna, head of research at ICICI Securities Primary
Dealership, was in the minority of analysts that had expected
the RBI to pause rate hikes at its meeting on Thursday.
"By the next meeting (in June), if inflation data is in line
or slightly better and globally, if we get an indication that
the U.S. Federal Reserve is done with hikes, then, I think,
their (RBI's) conviction will also grow," said Prasanna.
"So, then that pause can get extended in the next meeting."
The central bank's surprise decision to hold its key repo
rate steady, at 6.50%, after six consecutive hikes
sent the benchmark 10-year bond yield tumbling to a near
seven-month low of 7.15%.
However, yields recovered from their session lows as RBI
officials repeated several times that they could resume rate
hikes at its meeting in June.
"This is the only way they could have paused, by combining
it with the option to hike in the future," said Prasanna.
"If they had combined it with more dovish commentary, then
the market would have gone ahead and started pricing in cuts
also."
The decision on future rate hikes will depend on whether
inflation runs above the RBI's projections of an average of 5.2%
in 2023-24, compared to 6.44% in February.
That makes March and April data key, said Prasanna, who
expects that inflation can even go below 5% by April. Inflation
has stayed above the RBI's upper tolerance limit of 6% for most
of the last financial year, including in January and February.
Expectations from the U.S. Federal Reserve, which will be
clearer by the time the RBI meets in June, will be an important
input as well, said Prasanna.
Despite growing expectations of a prolonged pause, ISEC-PD
expects bond yields to remain rangebound after Thursday's fall.
While this pause is positive, the supply of government bonds
also remains high, said Prasanna. The impact of recent tax
changes on inflows into debt mutual funds also needs to be
assessed, he said.
(Reporting by Ira Dugal; Editing by Savio D'Souza)
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