3 min readNew DelhiMay 10, 2016 05:11 PM IST
First published on: May 10, 2016 at 05:11 PM IST
The CPI inflation trajectory has by far stuck to the central bank’s path. From 5.5 per cent in January-February this year, CPI inflation eased to 4.8 per cent in March.
The Reserve Bank’s window for another rate cut will open up only in the second half of this year, says a DBS report.
According to the global financial services major, the Central bank is likely to adopt a ‘wait-and-see’ mode in June as much of the emphasis would be on ensuring an effective policy transmission process.
“India’s monetary policy direction is likely to remain inflation-dependent, with a window to ease rates to reopen in the second half of the year,” DBS said in a research note.
The CPI inflation trajectory has by far stuck to the central bank’s path. From 5.5 per cent in January-February this year, CPI inflation eased to 4.8 per cent in March.
A modest rise in commonly-used vegetable prices and increase in retail fuel prices is likely to lift April’s CPI to 5.2 per cent, the global brokerage said, adding that the May-June readings are likely to hover below 5 per cent, excluding one-off influences.
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Rainfall strength and impact on food supplies will be a key influence on the September quarter trends.
“In the absence of supply shocks, inflation is unlikely to pose a threat to the central bank’s targets. This should pave the way for the central bank to lower the benchmark rates by another 25 bps in the third quarter, before entering a pause mode,” DBS said.
Moreover, the 7th Pay Commission disbursal is also expected to stroke inflation expectations.
“The increase in the housing rent allowance solely will lead to a mechanical rise in the headline inflation when implemented. Rate cut expectations will get derailed if any of these factors distort inflation readings by a significant measure over this quarter and the next,” the report said.
Last month RBI reduced its policy rate by 0.25 per cent to 6.5 per cent — its lowest level in more than five years. While this was the first rate cut after a gap of six months, RBI has lowered its rate by 1.5 per cent cumulatively since January 2015.
However, the industry still wants further rate cuts from RBI to boost investment.
The CPI inflation trajectory has by far stuck to the central bank’s path. From 5.5 per cent in January-February this year, CPI inflation eased to 4.8 per cent in March.
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