Deutsche Bank sees 25 basis point rate cut next week

However if CAD, inflationary pressure do not abate, research raises concern on future rate cuts

With WPI inflation still under control the bank's research sees rate cut happening next week.

However if Current account deficit and inflationary pressure do not abate the research raises concern on future rate cuts.

Wholesale Price Index (WPI) inflation moved up marginally in February to 6.8% y-o-y (6.6% in January).  Bank Research observes that on a seasonally adjusted basis, this constituted a 0.9% month-on-month rise in February (0% in January).

Inflation momentum (as measured by 3 month/3month seasonally adjusted annualized rate) fell further to 3% in Feb, from 3.3% and 5.6% in the previous two months. More importantly, beyond the headline, underlying inflation developments were favorable.

However on the other hand the CPI inflation turned out to be higher in February than the January outturn (10.9 percent y-o-y vs. 10.8% y-o- y). Food prices were up 0.8% month-on-month in February (13.4% y-o-y), led by price pressures in cereals (2.0% month-on-month) and egg/fish/meat (2.1per cent month-on-month) categories.

Core CPI (CPI excluding food and fuel) was also up from the previous month (8.4% y-o-y vs. 8.2% y-o-y).

The Bank research believes that that “RBI will give more weight to the February WPI outturn and opt for a 25 basis points rate cut in next week's policy, though we are concerned that the window for policy easing could be closing if inflation pressures don't abate further and current account deficit does not improve”.