'Further fall in retail inflation likely in Oct'

But RBI unlikely to cut rates, says Reuters poll

A survey of 27 economists and analysts predicted Consumer Price Index-based (CPI) inflation, scheduled for release on Wednesday, would cool to an annual 5.8 per cent in October.

If the forecast is met, it will be even lower than September's 6.46 per cent and the slowest pace of price rise since retail inflation numbers were first published in January 2012.

It would also make the Reserve Bank of India (RBI)’s inflation targets — eight per cent by January 2015 and six per cent a year later — appear more attainable.

Wholesale Price Index-based inflation is forecast to ease to a near five-year low of 2.2 per cent in October from September's 2.38 per cent, the Reuters poll showed. This data will be released on Friday.

The recent slowdown in inflation has largely been due to fall in local food prices, which account for 50 per cent of the CPI basket, and Capital Economics’ India economist Shilan Shah said it could still go lower.

“Over the coming months, we suspect both measures of inflation will remain subdued by past standards,” Shah said.

The poll also predicted industrial production to have increased a meager 0.6 per cent in September, albeit better than August's 0.4 per cent.

A poor factory output number on Wednesday will imply the economy may struggle to maintain a recent pickup in growth.

“Monetary loosening could come onto the agenda sooner than most seem to expect,” Shah said.

He said RBI could cut its benchmark repo rate by 100 basis points to seven per cent over the next 12 to 18 months.

However, some say RBI may not want to release the monetary policy brakes in a hurry.

“These releases will point to slowing industrial activity alongside slippery inflation — a combination that will add to the growing chorus for rate cuts in December,” said Radhika Rao, economist at DBS.

“But the RBI is unlikely to oblige”

It will wait for more clarity on inflation and rates could stay unchanged until March, after the government releases its Budget, Rao added.

A Reuters poll last month showed economists expect the RBI to keep its key repo rate steady at 8% well into next year, as it remains wary of a sudden surge in inflation due to a spike in food and oil prices.