25 bps RBI rate cut in offing as inflation dips to 3.6% as vegetables, pulses prices cool

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New Delhi | Published: December 15, 2016 6:08:45 AM

CPI inflation dipped to 3.6% in November led by a large dip in food inflation. Food items such as vegetables and pulses were the largest drivers of the decline seen in food inflation.

CPI inflation dipped to 3.6% in November led by a large dip in food inflation. Food items such as vegetables and pulses were the largest drivers of the decline seen in food inflation. Core inflation was more or less stable during the month. Notably, core (ex-fuel) reported a dip to 5.2% from 5.3% in the previous month. Our trajectory indicates an end-March 2017 level of around 4.6%. We see a possible case building up for a further 25bps cut in repo rate by the RBI in the months ahead. However, uncertainty on the international front and likely volatility in the global financial markets may make a case for the RBI to wait a little longer.

CPI inflation eased to 3.6% in November (4.2% in October), principally due to lower prices of certain food items. Food inflation increased 2.6% in November compared with 3.7% in October.

Core inflation at 4.9% was similar to last month’s print of 4.95%. As expected, the transport & communication index rose 0.4% MoM on higher fuel prices. With oil prices rising even further, we expect transport & communication index likely to see further rises. Core (ex-fuel) inflation was lower by 10 bps (MoM) at 5.2%. The easing was largely led by housing, household goods and services & health. While currency shortage may lead to lower inflation in some categories, with higher oil prices, we expect core inflation to rise.

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