RBI to keep rates steady as inflation jumps: Reuters Poll

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The government may have swallowed a bitter pill and raised diesel prices despite resistance from allies and the opposition, but Friday's high inflation figure means the central bank is unlikely to be persuaded to cut rates at its mid-quarter review on Monday, a poll conducted on Friday afternoon found.

In a snap poll of 18 economists, all but two expect that Reserve Bank of India to leave its policy repo rate unchanged at 8 per cent, in line with a poll conducted earlier this month.

The median estimate for the repo rate at end of 2012 was 7.75 per cent, unchanged from the previous poll.

The RBI has held the policy repo rate steady since cutting it by 50 basis points in April and has said further cuts depend in part on the government's steps to contain the fiscal deficit.

The diesel price increase is too small a step by itself to provide the required comfort to the RBI, economists said.

"Independently, it won't sway the RBI because although it will limit the slippage in the subsidy bill, the fiscal deficit will remain significantly above the target in the absence of further measures," said Leif Eskesen, chief economist for India and ASEAN at HSBC.

While some had analysts initially expected a rate cut after New Delhi decided to raise the price of the heavily subsidised diesel, Friday's report showing headline inflation rose to 7.55 per cent in August dashed such prospects.

New Delhi has been pushing for monetary easing as growth has slowed to its weakest in three years, hoping it would help jump-start a weak investment cycle in Asia's third largest economy.