Inflation in India seen cooling further in Oct, may not budge RBI

Indian inflation is expected to slow to a record-low in October, dragged by sharp drops in food and oil prices.

By: Reuters | Banglore | Published: November 11, 2014 12:47:22 pm

Indian inflation is expected to slow to a record-low in October, dragged by sharp drops in food and oil prices, a Reuters poll showed, probably intensifying calls for an interest rate cut by the Reserve Bank of India.

The survey of 27 economists and analysts predicted consumer price inflation (CPI), scheduled for release on Wednesday, cooled to an annual 5.80 percent in October.

If the forecast is met, it will be even lower than September’s 6.46 percent and the slowest pace of price rises since retail inflation numbers were first published in January 2012.

It would also make the RBI’s inflation targets – 8 percent by January 2015 and 6 percent a year later – appear more attainable.

Wholesale price inflation is forecast to ease to a near five-year low of 2.20 percent in October from September’s 2.38 percent, the Reuters poll showed. This data will be released on Friday.

The recent slowdown in inflation has largely been due to falls in local food prices, which account for 50 percent of the CPI basket, and Capital Economics’ India economist Shilan Shah said it could still go lower.

“Over the coming months, we suspect that both measures of inflation will remain subdued by past standards,” Shah said.

The poll also predicted industrial production to have increased a meager 0.6 percent in September, albeit better than August’s 0.4 percent.

A poor factory output number on Wednesday will imply Asia’s third-largest economy may struggle to maintain a recent pickup in growth.

“Monetary loosening could come onto the agenda sooner than most seem to expect,” Shah said.

He said the RBI could cut its benchmark repo rate by 100 basis points to 7.00 percent over the next 12 to 18 months.

However, some say the RBI may not want to release the monetary policy brakes in a hurry.

“These releases will point to slowing industrial activity alongside slippery inflation – a combination that will add to the growing chorus for rate cuts in December,” said Radhika Rao, economist at DBS.

“But the RBI is unlikely to oblige.”

It will wait for more clarity on inflation and rates could stay unchanged until March, after the government releases its budget, Rao added.

A Reuters poll last month showed economists expect the RBI to keep its key repo rate steady at 8.0 percent well into next year, as it remains wary of a sudden surge in inflation due to a spike in food and oil prices.

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