RBI might be seen taking some comfort from the fact that the seasonally adjusted sequential momentum (3m/3m,saar) has actually come off in December

Indranil Pan, Chief Economist, Kotak Mahindra Bank perspective on the WPI

December WPI inflation was at much lower-than-expected levels of 6.16% with a sharp drop in primary articles inflation. However, the surprise factor came in from an uptick in the core inflation to 2.75% from 2.63%. The RBI, in our opinion, would definitely remain cognizant of this fact and hence will be in no position to ease its monetary policy stance, despite the relatively larger-than-expected drops in the Headline numbers. On a more generalized basis, the core prints do point to the fact that the demand side compressions have not yet been adequate. Based on this, the call for the monetary policy now becomes even closer as the core inflation on both the WPI and the CPI has now ticked higher. However, the RBI might still be seen favouring a pause on January 28 on the basis that past monetary policy action is taking a larger time to seep through the real sector of the economy and that the recent positive momentum on the currency might have a salutary benefit for the core in the next few months. And finally, the RBI might be seen taking some comfort from the fact that the seasonally adjusted sequential momentum (3m/3m,saar) has actually come off in December.

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