'CPI inflation to stay benign; RBI to cut final 25 bps in Aug'

Inflationary pressure is likely to remain in check due to low, sub-potential growth and CPI forecast should average 5 per cent in the fiscal, in line with the Reserve Bank's target, says a report.
Global financial services major Bank of America Merrill Lynch (BofA-ML) revised its fiscal 2016-17 CPI inflation forecast to 5.7 per cent in March 2017 from 5.5 per cent earlier assuming oil at USD 55 per barrel, saying the average CPI inflation forecast should drop to 5 per cent, in line with RBI's 5 per cent fiscal 2016-17 target.
The report noted that the scope for further RBI rate cuts is "limited" as the repo rate at 6.25 per cent would be well below the 6.9 per cent historical average CPI inflation.

According to the firm, inflation roadmap for this year supports a rate cut by RBI in its policy review meet on August 9.
"We continue to expect RBI to cut a final 25 bps on August 9 with core CPI inflation expected to remain benign at 5 per cent," BofA-ML said.
WPI would end the financial year at a lower 4.9 per cent. "If Brent stays at current levels, WPI inflation works out to be 3.8 per cent. Core WPI inflation will likely remain soft at 3.3 per cent," it added.

Three swing factors for headline inflation in this fiscal year are -- rains, seventh pay commission and oil.

Earlier this month, RBI reduced its policy rate by 0.25 per cent to 6.5 per cent -- its lowest level in more than five years. While this was the first rate cut after a gap of six months, RBI has lowered its lending rate by 1.5 per cent cumulatively since January last year.
However, the industry still wants further rate cuts from RBI to boost growth.