Both inflation and factory output data reinforce the case for monetary easing this year and the Reserve Bank of India may go for a policy rate cut before the February budget, say experts.
Echoing sentiments, Citigroup India Economist Rohini Malkani said the latest inflation data and benign outlook strengthens the case for monetary easing, adding that "we reiterate our view that the normalisation in inflation could result in rates being eased by 100bps by FY16."
"Given current growth-inflation dynamics and RBI's December policy statement of the possibility of acting outside the policy review cycle, we wouldn't be surprised if it does cut before the February budget," Malkani said.
RBI Governor Raghuram Rajan during the last monetary policy review in December 2014 kept interest rate unchanged, saying that a shift in stance is 'premature' but hinted that a cut may come in early 2015 if inflation continues to ease and government acts on the fiscal side.
RBI is scheduled to announce its sixth bi-monthly monetary policy on February 3.
According to official figures, industrial production grew at five-month high of 3.8 per cent in November last year, while retail inflation inched up to 5 per cent in December.
According to HSBC, the CPI inflation would average in the 5.5-6 per cent range in the first half of 2015. RBI's current target is 6 per cent CPI inflation in January 2016.
Meanwhile a DBS in a research note further said that "overall, we expect the production trend to improve gradually. ... This should see GDP growth recover to 5.6 per cent in FY14/15 and accelerate to 6.1 per cent in FY15/16", the DBS report added.