'Inflation to stay below RBI projection; 25 bps cut likely'

Retail inflation is likely to be lower than the Reserve Bank's projections and would average around 5 per cent level this fiscal, which in turn may prompt the central bank to go for another rate cut, experts say.
According to research reports from financial services firms -- Citigroup and SBI -- CPI inflation has remained within RBI's comfort range despite a spell of unseasonal rains and the recent increase in global crude prices.
"The sensitivity to inflation has been on a decline and this could especially be the case if global food prices remain benign and trends in rural wages and MSP remain moderate," Citigroup India Economist Anurag Jha said in a research note.

Retail inflation edged up to 5.01 per cent in May. The Consumer Price Index-based inflation was at 4.87 per cent in April.
"Overall, we expect CPI to undershoot RBI's January 2016 projection by around 40 basis points and average 5 per cent in FY16, while WPI could average about 2 per cent with downside risks. This is likely to create room for further 25 basis points cut post clarity on monsoon," Citigroup added.
Meanwhile, a research report by leading public sector lender SBI said "going forward, we believe CPI trajectory will be benign and will be lower than RBI projections at around 6.5 per cent (March 2016)."

In the policy review meet on June 2, RBI cut interest rate by 0.25 per cent for the third time this year to spur investment and growth but hinted that there may not be any more cuts in the near-term.

According to SBI Research, the August CPI would be around sub-4 per cent (at 3.5-3.6 per cent), while FY16 March could be around 5.6-5.7 per cent. This may prompt the RBI for another cut in repo rate towards the end of this fiscal," it added.
SBI Research noted that as the Southwest Monsoon is proceeding, the fear of deficit monsoon is waning off.

"Monsoon rainfall, at 11 per cent above average till date supports our trend analysis since 1950 that if June rainfall is above normal, there is a 65 per cent probability of adequate monsoon for the entire monsoon session," it added.