India’s inflation at near six-year low, boosts rate cut bets
Banks expect the repo rate to drop to as low as 5 per cent in this easing cycle, implying 100 basis points more in cuts
[MUMBAI] India’s inflation eased to the lowest in nearly six years last month, reinforcing calls for deeper interest rate cuts to bolster growth in Asia’s third-largest economy.
The consumer price index (CPI) rose 3.34 per cent in March from a year earlier, data from the statistics ministry showed on Tuesday (Apr 15), lower than the 3.5 per cent increase predicted by economists in a Bloomberg survey. Inflation slowed from 3.61 per cent in February.
A print below the Reserve Bank of India’s (RBI) 4 per cent target validates its move to cut interest rates by a quarter point in each of its two previous meetings, lowering the benchmark to 6 per cent. The RBI also last week signalled more easing to come by shifting its policy stance to accommodative.
Banks such as Morgan Stanley, Nomura Holdings and Kotak Mahindra Bank expect the repo rate to drop to as low as 5 per cent in this easing cycle, implying 100 basis points more in cuts.
The softer-than-expected inflation “will provide further comfort to RBI to continue to prioritise growth”, said Kotak’s chief economist Upasna Bhardwaj.
Easing food inflation and lower oil prices will also allow the RBI to stay with looser policy settings. India’s weather office expects above-normal monsoon rains this year, boosting prospects for the rural economy.
Food inflation, which makes for nearly half of the CPI index, eased to 2.69 per cent from 3.75 per cent last month. Vegetable prices fell 7.04 per cent after declining 1.07 per cent in February, the data showed.
Excluding volatile food and fuel prices, core inflation accelerated to 4.2 per cent from 4.08 per cent earlier, according to calculations from Bloomberg Economics.
“We see space for another two rate cuts this year,” said Gaura Sen Gupta, an economist at IDFC First Bank. If global growth conditions weaken further, “we don’t rule out the possibility of a third rate cut”, she said. BLOOMBERG
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