Inflation cools further, may spur fresh rate cut
Retail prices hit 19-month low, factory output subdued
NEWDELHI: India’s retail inflation slowed further to a new 19-month low in January while factory output, dragged down by a negative base effect, remained subdued in December, opening more space for the central bank to cut interest rates.
Data released by the Central Statistics Office showed consumer price index or Cpi-based inflation stood at 2.05% in January against the 18-month low of 2.11% in December, while factory output recovered to 2.4% in December from 0.3% in November.
The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) on 7 February changed its stance from calibrated tightening to neutral and cut the policy rate by 25 basis points on the back of benign headline retail inflation and slowing global growth.
RBI governor Shaktikanta Das said at the time that the shift in the stance of monetary policy provides flexibility and the room to address challenges to sustained growth of the Indian economy over the coming months, as long as the inflation outlook remains benign. “The decisions of the MPC in this regard will be data driven and in consonance with the primary objective of monetary policy to maintain price stability while keeping in mind the objective of growth,” he had added.
While food inflation continued to be in negative territory in January, the RBI will breathe easy as core inflation— excluding food and fuel prices— decel- erated for the fourth consecutive month to 5.4% in January against 5.6% a month ago.
The MPC revised its retail inflation projection for the first half of the next fiscal lower to 3.2-3.4% from 3.4-4.2% earlier. It, however, ignored the impact of both high core inflation and an expansionary fiscal policy, inviting criticism from some quarters.
Rating agency Crisil Ltd’s chief economist D.K. Joshi said retail inflation has undershot expectations in January which has opened up the possibility of another rate cut in April. “Beyond that, we expect food inflation to climb to positive territory and goad headline inflation upwards. After that, monetary policy action is a tough call, because the moving parts are many, and data will hold sway,” he added.
Within the index of industrial production (IIP), mining output shrank 1%, while manufacturing and electricity output grew 2.7% and 4.4%, respectively. Items with the steepest negative contribution to IIP growth included diesel, copper bars and raw materials for drugs.
While capital goods, which represent investment demand in the economy, recovered from negative territory a month ago, a sharp contraction in primary goods to a 44-month low and sustained contraction in intermediate goods for two consecutive months have dragged overall industrial growth lower for December. The base effect, which turned adverse starting November, is expected to continue for the rest of the financial year ending March. NEW DELHI: Airlines in India are expected to sharply narrow their annual losses in the next financial year as a result of a fall in jet fuel prices and higher fares, aviation advisory firm Capa India said on Tuesday.
Budget as well as full-services carriers are expected to lose between $550 million-700 million in FY20, compared with a combined loss of up to $1.7 billion this year through March, said Kapil Kaul, Capa’s chief executive officer (CEO) and director South Asia, at the Capa India annual summit in New Delhi.
This year’s figure is an improvement from the $1.9 billion loss expected by Capa in its previous outlook issued in September when crude oil prices were trending higher.
Jet fuel prices have dropped 24% since November 1, when it touched the 2018 high of ₹76,378.80 a kilolitre in New Delhi, according to Indian Oil Corp.’s website.
The latest forecast is likely to cheer airlines as well as investors in India’s aviation industry where most of the carriers are struggling financially and saddled with large debt.
“There exists an opportunity to create a sustainable, profitable future within 1-2 years,” Kaul said.
“This will drive serious investor interest given the size of the market.” He said new investors are expected to come on board at two to three domestic carriers in the next financial year while one airline is likely to be acquired.
“We expect industry to consolidate with around four to five airlines (by FY20),” he said, adding that Air India could be privatized if key decisions are taken with respect to hiving off working capital debt.
Capa India estimates domestic traffic to grow 14%-16% annually from FY20. At the same time, international traffic is expected to grow 10-12% as local carriers add more than 90 planes to their fleet.
The government’s regional air connectivity scheme is, however, expected to continue to struggle, he added. Capa’s executive chairman Peter Harbison said India’s new aviation policy has created potential for establishing hubs for long-haul flights.
“It has become easier now ( to establish hubs) as airport infrastructure is being developed,” he said.
CPI-BASED INFLATION WAS 2.05% IN JAN AGAINST 2.11% IN DEC, WHILE FACTORY OUTPUT RECOVERED TO 2.4% IN DEC FROM 0.3% IN NOV