Devdiscourse
Development News Edition
Give Feedback
VisionRI - Urban Development

Inflation notches 19 month low at 2.05 pct, RBI likely to cut 25 bps in April: Report


Devdiscourse News Desk mumbai India
Updated: 13-02-2019 16:17 IST
Inflation notches 19 month low at 2.05 pct, RBI likely to cut 25 bps in April: Report

In the sixth bi-monthly monetary policy review announced on February 7, the RBI surprisingly reduced the repo rate by 25 bps to 6.25 per cent-making the first rate reduction in 18 months. Image Credit: Wikimedia

With retail inflation easing further to a 19-month low at 2.05 per cent in January, the Reserve Bank may surprise with another 25 bps repo rate cut to 6 per cent in the April policy, says a brokerage report. The consumer price index (CPI)-based retail inflation was revised downwards to 2.11 per cent for December from the earlier estimate of 2.19 per cent. In January 2018, the retail inflation was at 5.07 per cent.

"Benign inflation seals the case for another rate cut. January CPI print of 2.05 per cent further reaffirms our belief that the Monetary Policy Committee (MPC) would cut the repo rate by another 25 basis points (bps) to 6 per cent in April," Kotak Securities said in a report Wednesday.

The MPC is scheduled to meet from April 2 to 4 to announce the seventh monetary policy. In the sixth bi-monthly monetary policy review announced on February 7, the RBI surprisingly reduced the repo rate by 25 bps to 6.25 per cent-making the first rate reduction in 18 months.

The central bank also changed its policy stance to 'neutral' from the earlier 'calibrated tightening', signalling a further softening on its approach towards interest rates. The monetary authority has also lowered its estimates on headline inflation for the next year and expects the number to print at 2.8 percent in the March quarter, 3.2-3.4 percent in first half of next fiscal and at 3.9 percent in third quarter of FY20.

The brokerage report said the downward revision of 60 -80 bps to its H1 of FY20 inflation projections to 3.2-3.4 percent and the opening up of the output gap have improved the probability of multiple rate cuts in 2019. "While inflation in the near-term is likely to remain benign, any further monetary accommodation will hinge on the evolution of inflation and growth dynamics," it said.

The MPC would be constrained to cut rates aggressively as inflation is expected to inch up over 4 percent in H2 of FY20, with upside risks from volatility in food and fuel prices, monsoons, fiscal slippages and elevated core inflation, the report said. The last week's policy also laid to rest the RBI's ambivalence between core and headline inflation numbers, choosing to go with the headline price index.

(With inputs from agencies.)

COUNTRY : India

POST A COMMENT