Retail inflation unexpectedly dips to 3-month low

NEW DELHI: India’s consumer price index (CPI)-based inflation unexpectedly slowed to a threemonth low in March, which could encourage the Reserve Bank of India to deliver another off-cycle interest rate cut to boost econom- ic recovery. Retail prices rose 5.17% year-on-year last month against 5.37% in February.

Food prices were up 6.14% year-on-year in March compared with a 6.88% rise a month earlier.

With inflation below the 6.0% upper end of the central bank’s target range, some analysts expect RBI governor Raghuram Rajan to surprise investors with another rate cut.

The central bank has cut interest rates twice this year at unscheduled meetings, but kept its key repo rate on hold at 7.50% last week, waiting to assess inflation pressures and give commercial banks more time to cut lending rates.

“This has raised the possibil- ity of an interest rate cut outside the scheduled review cycle for the third time this year,” said Shilan Shah at Capital Economics, who expects a 0.25 percentage point cut before a scheduled policy review on June 2. Before the data, many economists were expecting the RBI to keep rates unchanged for now, but cut once more in late June.

During the last few weeks, unseasonably heavy rains in north and central India have damaged crops, leading to a rise in vegetable and foodgrain prices.

The RBI said last week that it expects consumer inflation to stay at current levels in the April-June quarter, but rise to 5.8% by the end of the year.