With softer retail and wholesale
price-based inflation, Reserve Bank of India is likely to
change its policy stance to 'neutral' from 'calibrated
tightening' in the February policy, says a report.
The inflation based on the Consumer Price Index (CPI)
eased to an 18-month low of 2.19 per cent in December compared
to 2.33 per cent in November and 5.21 per cent in
The Wholesale Price Index (WPI)-based inflation also
eased to a eigth-month low of 3.80 per cent in December 2018,
as against 4.64 per cent in November 2018, and 3.58 per cent
in December 2017.
This is the fifth consecutive month that the CPI
reading has been below the RBI's target of 4 per cent.
"Benign headline inflation to provide a dovish tilt to
monetary policy committee (MPC). Softer December CPI and WPI
prints of 2.2 per cent and 3.8 per cent, respectively reaffirm
our belief that the MPC will adopt a more dovish tone in the
February meeting and change its stance to neutral from
calibrated tightening," according to a Kotak
RBI will announce it's sixth bi-monthly monetary
policy on February 7. The report expects CPI at around 3.3 per
cent in March 2019.
It said concerns, however, remain about the stickiness
of core inflation, especially at a time when growth is
expected is slow to 6.6 per cent in the second half of FY19.
"While volatile crude oil prices and concerns on
fiscal slippage may warrant some caution, the seemingly
structurally benign food inflation along with softening growth
should help in capping the upside pressures," it said.
The report expect a 50 basis points of rate cut in the
first half of 2019.
In the previous monetary policy announced in December,
RBI kept the repo rate unchanged at 6.5 per cent.