Notwithstanding moderation in inflation, the Reserve Bank is likely to keep status quo on the policy rates this fiscal to check price rise expectations, says a report.
"We expect the central bank to stick to a firm anti-inflationary stance over the remainder of the current fiscal to rein in inflation expectations and impart credibility to its targets," ICRA Ratings chief economist Aditi Nayar said in a report.
She, however, expects the apex bank to begin a rate-easing cycle in the first quarter of the next fiscal, with repo rate cuts of up to 50 basis points.
Reserve Bank Governor Raghuram Rajan will announce the fifth bi-monthly monetary policy on December 2.
The rating agency sees CPI inflation in January 2015 to be well below the target of 8 percent as per the glide path announced by the RBI, despite base effect waning after this month. Retail inflation eased to 6.46 percent in September, lowest since January 2012, from 7.73 percent in August.
"While liquidity conditions for the rest of the fiscal would be guided by the extent of revival of the investment cycle, systemic liquidity is anticipated to remain comfortable, dampening various interest rates despite our expectation that the repo rate would remain unchanged at 8 percent in FY15," she said.
Nayar expects the RBI to continue to use term repos and overnight variable reverse repos as the primary tools for liquidity management.
She also said her agency sees GDP growth moderating to 5 percent in the second quarter, down from 5.7 percent in the first quarter. This is on account of factors like unfavourable kharif harvest, sluggish manufacturing, export slowdown and moderation in the pace of expansion of government spending.
"We maintain a GDP growth forecast of 5.3-5.5 percent for this fiscal, which takes into account expectations of a mild improvement in manufacturing growth; some pickup in investment activity in fourth quarter; and a healthy rabi harvest offsetting kharif crop losses," the report said.
The rating agency has revised its forecast for credit growth during FY15 to 13.5-14.5 percent from the previous estimate of 14-15 percent, while maintaining its estimate for deposit growth at 12.75-13.50 percent.
Credit growth is expected to recover moderately by fourth quarter of this fiscal as large ticket corporate loans pick up with an improvement in economic growth conditions.
However, following the decline in commodity prices, the working capital requirements of firms in various sectors would be lower, she said.
"The deregulation of diesel prices would lead to lower under-recoveries for OMCs, reducing their working capital needs," it said.