Analysts uncertain on RBI rate cut due to inflation concerns

By: | Published: April 13, 2018 4:54 PM

Even as inflation cooled to 4.3 per cent for March led by food prices, analysts are not so certain about a policy rate cut by Reserve Bank in the near future on worries of a rise in the headline number.

rbi, inflation, reserve bank of india, reserve bank, economy, cpiThe inflation based on Consumer Price Index (CPI), a key data factored in by the RBI to arrive at interest rate, was 4.44 per cent in February. (Reuters)

Even as inflation cooled to 4.3 per cent for March led by food prices, analysts are not so certain about a policy rate cut by Reserve Bank in the near future on worries of a rise in the headline number. American brokerage Morgan Stanley, has said that the rise in inflation in the second half of the year which the RBI’s lowered estimate also expects, may also result in a “shallow rate hike” cycle from October-December.

“We expect the inflation trajectory to be driven by strong base effects in the coming months, likely reaching a peak in June driven by the twin factors of a reversal of base effects in food inflation and continued implementation of the house rent allowance,” it said.

The research wing of the largest rating agency Crisil said it does not expect any rate action by the RBI for the next six months and hinted that it can only be a hike, if the upside risks spelt out by RBI materialise.

“We foresee CPI inflation averaging 4.6 per cent next fiscal. The pick-up will be due to rising consumption demand, impact of house rent allowance revisions on housing inflation, and higher global crude oil prices,” the Crisil note said.

Bank of America Merill Lynch said that it expects a shoot-up in the consumer price inflation to 5.4 per cent in the June quarter driven by base effects which will result in the RBI’s rate setting panel looking through the increase.

“With inflation easing from December’s 5.2 per cent, we are still confident of our call of a 0.25 per cent August 1 RBI rate cut,” it said, adding that the call depends on normalcy in rains.

Retail inflation slowed to 4.28 per cent in March, the third consecutive month of decline, mainly on account of easing food prices including vegetables, government data
showed today.

The inflation based on Consumer Price Index (CPI), a key data factored in by the RBI to arrive at interest rate, was 4.44 per cent in February. However, the March 2018 inflation was higher than 3.89 per cent recorded in the same month last year.

Earlier this month, Reserve Bank had lowered its retail inflation target for the first half of the current fiscal to 4.7-5.1 per cent on sharp moderation in food price rise and likelihood of a normal monsoon from the 5.1-5.6 percent range projected earlier.

The commentary in the monetary policy was seen as being dovish by commentators. RBI Governor Urjit Patel had said that the central bank will be data dependent. PTI AA DSK

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Switch to Hindi Edition