Press Trust of India / New Delhi Jan 22, 2012, 11:28 IST
Global ratings agency Moody's has said inflation in India is likely to moderate to around 6.5% by the middle of this year and the Reserve Bank may go for interest rate cuts by February.
"We expect Wholesale Price Index (WPI) inflation to cool a little in the coming months... We expect WPI inflation to ease toward 6.5% by mid-2012," Moody's Analytics said in its report, 'India: Wholesale Price Index'.
According to the agency, while inflation is on a downward trend, the month-on-month fall in January is not likely to be as steep as was witnessed in December, 2011.
Headline inflation fell to a two-year low of 7.47% in December from 9.11% in November. The moderation was mainly on account of cheaper food items.
Food inflation has been in the negative zone since mid-December on the back of a steep decline in prices of vegetables, particularly potatoes and onions.
"We were honing in on a March rate cut, but this latest inflation cooling may give the RBI sufficient reason to move before then. The Indian economy is slowing sharply and with inflation coming off its peaks, there's no reason for the RBI to continue sitting on their hands," Moody's said in its report.
"Look for an initial rate cut in February," it added.
The central bank had hiked interest rates by 375 basis points between March, 2010, and October, 2011, to deal with persistently high inflation.
However, in its last review in December, the RBI pressed the pause button on its monetary tightening strategy and said that it might go for rate cuts in the future if inflation moderates further.
At the same time, the RBI is confronted with a moderation in economic growth. The government has cut its FY'12 growth projection from 9% to about 7% for the current fiscal.
The central bank is scheduled to conduct its third quarterly review of the monetary policy on January 24. However, experts feel RBI will refrain from cutting rates this time.
The RBI need not wait for the March mid-quarter review for announcing a change in the monetary policy and can go for a rate cut at any time.
"... There are still pipeline pressures that need watching, as indicated by the solid rise in non-food prices," Moody's said.
Inflationary pressure continues in manufactured items, which which have a weight of over 65% in the WPI basket.
Prices of manufactured products went up by 7.41% year-on-year in December, as against 7.70% in the previous month.
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Global ratings agency Moody's has said inflation in India is likely to moderate to around 6.5% by the middle of this year and the Reserve Bank may go for interest rate cuts by February.
