As inflation keeps its head low, will RBI go for further rate cut? Here’s what experts say

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Published: February 22, 2019 11:31:34 AM

The monetary policy committee (MPC) minutes on Thursday revealed that the primary reason behind Reserve Bank of India (RBI) decision to cut policy rate were weakening growth and cooling off inflation in the economy.

After the recent rate cut by the RBI, there is still room for further rate cut in the upcoming MPC review as inflation in the future is likely to remain low, according to experts.

Pointing out that the high real interest rates have been hurting the economy, Murthy Nagarajan, Head-Fixed Income, Tata Mutual Fund, speaking to Financial Express Online said “We expect one more rate cut in the April policy, as CPI inflation in near term should be lower due to lower food and crude prices’’.

The monetary policy committee (MPC) minutes on Thursday revealed that the primary reason behind Reserve Bank of India (RBI) decision to cut policy rate were weakening growth and cooling off inflation in the economy.

In January, both the consumer price index (CPI) inflation and the whole price index (WPI) inflation remained low at 2.05 per cent and 2.76 per cent respectively, government data showed.

The RBI in its bi-monthly monetary policy and credit statement released this month forecasted a lower inflation in the near term on the back of low prices of food, fuel, crude oil and housing rental alliance.

Moreover, forecasting a sharp fall in core inflation, Chief Economist of HSBC Pranjul Bhandari has addressed the concerns of those worried that RBI was loosening the policy too fast.

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The core inflation is not in equilibrium and it is expected to stabilise at lower levels once the health and education components which were high till now will come down and GST rates normalise, she said. “Once these shocks fade, core inflation could fall by 100 bps one year from now”, Pranjul Bhandari added.

However, one contradictory view emerged based on the study by Thomson Reuters-Ipsos, which showed a drop in Primary Consumer Sentiment Index (PCSI) during February pointing out towards an increasing inflation in the economy.

Countering this view, Murthy Nagarajan, said that the primary consumer sentiment Index (PCSI) is a limited sample of mostly urban consumers, where as the RBI survey of household inflation expectations is wide ranging which covers eight cities and the results are based on responses from 5,828 urban households and thus is more reliable.

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