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January inflation at 5.1%; RBI may cut rates by 25 bps in August: BofAML

While Budget 2018 has hiked minimum support prices, the inflationary impact is likely to be muted as ruling wholesale prices are already higher than the revised MSP

Press Trust of India  |  New Delhi 

Reserve Bank of India, RBI
Photo: Kamlesh Pednekar

is peaking off and the Reserve Bank of India is expected to cut rates by 25 bps in August if is normal, says a report.

According to global financial services major Bank of America Merrill Lynch (BofAML), risks are overdone.

January stood at 5.1 per cent, a shade below December's 5.2 per cent, and is tracking February inflation at 4.7 per cent with tomato/onion prices slipping.

"We expect the MPC to look through the jump in inflation to 5.4 per cent in April-June, as it is driven by base effects. Against this backdrop, we expect the MPC to cut rates by a final 25 bps in August if the La Nina materialises," said in a research note.

The La Nina phenomenon gives a boost to Southwest

The report further noted that while Budget 2018 has hiked minimum support prices, the inflationary impact is likely to be muted as ruling wholesale prices are already higher than the revised MSP.

"We estimate FY19 (2018-19) average inflation at 4.8 per cent (adjusted for June quarter base effects), well within the RBI's 2-6 per cent inflation target," the report said.

The Reserve Bank kept the key policy rate unchanged at 6 per cent for the third consecutive time on February 7 in view of firming inflation.

In its policy review meet, said it is expecting to rise to 5.1 per cent in the last quarter of the ongoing fiscal due to rising crude oil prices and hike in salary components of government employees.

The central bank has also projected inflation to be in the range of 5.1-5.6 per cent in the first half of 2018-19.

First Published: Tue, February 13 2018. 13:36 IST
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