With uncertainty over implementation of GST, rising crude oil
prices and the challenging 4% CPI
target in medium term, Reserve Bank
may cut repo rate
for the final time by 25 basis points in the February policy, says a report.
"We hold on to our expectation of a 25 basis points rate cut in February, but caution that this would likely bring the easing cycle to an end, given the pressures in the horizon - implementation of the GST
bill, rising oil
prices, implementation of government
employees housing allowance, and the challenging 4% CPI
target for the medium term," HSBC
said in a report on Friday.
has set an objective for achieving consumer price index (CPI) inflation
at 5% by the third quarter of the financial year 2016-17 and the medium-term target of 4% within a band of +/- 2%.
eased to 3.41% in December, which is a 25-month low as against 3.63% in November.
The report said the RBI
will meet its 5% CPI
target for March comfortably.
said since demonetisation, high frequency food data prices have been moderating.
"As such, we are not surprised to see both y-o-y and m-o-m non-seasonally adjusted fall in December prices. Vegetables, pulses and fruits led the charge," it said.
The November Index of Industrial Production (IIP) rose to 13-month high of 5.7% compared to the contraction of 1.9% in October.
The report said the numbers need to be interpreted with care as the IIP series tend to undergo sharp revisions as more companies report production activity and subsequent revisions could well be downward.
"Also, much of the pain following demonetisation is likely to show up in upcoming months," it said.
report said on the back of the ongoing cash crunch (still a 40% contraction in effective currency in circulation), it expects GDP to grow 5% y-o-y in the October-December quarter and 6% y-o-y in the January-March quarter.
"We expect growth to normalise gradually towards the 7% ballpark, but remain shy of the 7.5-8% range in the financial year 2017-18, due to adjustment costs that businesses and consumers face, in the process of formalisation and digitisation," the report says.