Consumer price inflation hit a three-month low of 5.17% in March, as food inflation moderated despite expectations to the contrary following damages to crops from unseasonal showers in some states, reports feb Bureau in New Delhi. Coupled with the negative wholesale-price inflation for four straight months through February, the latest moderation in retail inflation from 5.37% in February has prompted some analysts to expect a rate cut by the Reserve Bank Of India in its monetary policy review meeting in June to push growth. However, any adverse monsoon forecasts for 2015 could still spoil the party. For the entire FY15, CPI inflation dropped to 6%, against 9.5% a year earlier. Core inflation stayed at 4.14%, almost at the February level of 4.15%, with some analysts forecasting it may have bottomed out. However, the fact that core inflation stayed around the same level for the past two months also suggests persistent weakness in demand-side inflationary pressures.

“While the extent of crop damage remains somewhat unclear, concerns related to the impact of the unseasonal rains on food prices are yet to completely dissipate in our view,” said ICRA senior economist Aditi Nayar. Still, analysts believe that the CPI inflation would be within the RBI target of under 6% for January 2016.


“If the monsoon is normal and crude oil prices do not post a significant rebound, ICRA expects CPI inflation to average 5.5% in 2015, limiting future repo rate cuts to 50 basis points over the remainder of 2015,” Nayar said.

While holding the repo rate earlier this month, RBI governor Raghuram Rajan had said: “Going forward, the accommodative stance of monetary policy will be maintained, but monetary policy actions will be conditioned by incoming data,” Rajan said. He added that the RBI would monitor the transmission of previous rate cuts by banks, inflation, government moves to ease supplies of essential items and normalization of US policy even though India is “better buffered” against volatility.

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