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Analysts uncertain on RBI rate cut due to inflation concerns

Press Trust of India  |  Mumbai 

Even as cooled to 4.3 per cent for March led by food prices, analysts are not so certain about a policy rate cut by Reserve in the near future on worries of a rise in the headline number.

American brokerage Morgan Stanley, has said that the rise in in the second half of the year which the RBI's lowered estimate also expects, may also result in a "shallow rate hike" cycle from October-December.

"We expect the trajectory to be driven by strong base effects in the coming months, likely reaching a peak in June driven by the twin factors of a reversal of base effects in and continued implementation of the house rent allowance," it said.

The research wing of the largest rating agency said it does not expect any rate action by the RBI for the next six months and hinted that it can only be a hike, if the upside risks spelt out by RBI materialise.

"We foresee CPI inflation averaging 4.6 per cent next fiscal. The pick-up will be due to rising consumption demand, impact of house rent allowance revisions on housing inflation, and higher global crude oil prices," the note said.

of America Merill Lynch said that it expects a shoot-up in the consumer price inflation to 5.4 per cent in the June quarter driven by base effects which will result in the RBI's rate setting panel looking through the increase.

"With inflation easing from December's 5.2 per cent, we are still confident of our call of a per cent August 1 RBI rate cut," it said, adding that the call depends on normalcy in rains.

slowed to 4.28 per cent in March, the third consecutive month of decline, mainly on account of easing including vegetables, government data showed today.

The inflation based on Consumer Price Index (CPI), a key data factored in by the RBI to arrive at interest rate, was 4.44 per cent in February. However, the March 2018 inflation was higher than 3.89 per cent recorded in the same month last year.

Earlier this month, Reserve had lowered its target for the first half of the current fiscal to 4.7-5.1 per cent on sharp moderation in food price rise and likelihood of a normal monsoon from the 5.1-5.6 per cent range projected earlier.

The commentary in the was seen as being dovish by commentators. had said that the central bank will be data dependent.

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Fri, April 13 2018. 15:35 IST