Striking a different note from its peers, US brokerage Bank of America Securities has maintained that the Reserve Bank will leave rates unchanged next week, recognising growth-focused and capex-driven fiscal expansion, which though poses huge price pressure and interest rate risks later.
The RBI's rate setting panel Monetary Policy Committee (MPC) will begin its deliberations next Monday and announce the policy moves on Wednesday (February 9) in the backdrop of a massive spike in bond yields post the Budget.
Almost all major central banks are in the process of hiking rates to tame inflation.
The key repo rate has been at 4 per cent since May 2020, an all-time low, even though bond yields have been heading north for many months now.
The brokerage has also stuck to its view that the RBI will only adopt a gradual policy normalisation path for now, despite bigger fiscal support and faster rate hikes expected from the US Federal Reserve.
Barring some measures to stabilise the yields, which have already risen above the 2019 levels and sniffing at the 6.9 per cent mark after the Budget announced record borrowing plans next fiscal, the brokerage sees the overall domestic and external environment being unfavourable for the bonds market.
Stating that the Budget prioritises growth over fiscal consolidation, BofA analysts said they see the MPC leaving rates unchanged on February 9 when the central bank will unveil the last policy review of this fiscal, and undertake gradual tightening measures.
The market has been expecting a 25 bps reverse repo tightening.