Inflation Hits 6-month Low on Cheaper Veggies, Pulses
CPI rises 4.83% in Mar from a year ago, rising below consensus estimate of 5%
New Delhi: Retail inflation declined to a six-month low in March on the back of softer vegetables and pulses prices, opening room for further reduction in interest rates a few months later should the softening trend continue.
The consumer price index (CPI) rose 4.83% in March from a year ago, data released by the statistics office showed, rising well below the consensus estimate of around 5% and sharply lower than 5.26% uptick in February. The March consumer inflation is below the Reserve Bank of India’s target of 5% consumer inflation by the end of FY17.
“We expect RBI to maintain status quo in June, and then consider additional 25bps of repo rate cut in 2HCY2016,” said Upasna Bhardwaj, Economist, Kotak Mahindra Bank.
RBI had cut repo rate, the key policy rate, by 25 basis points on April 5 while adding that monetary policy stance rema- ins accommodative, implying that rate could be cut further if inflation fell. One basis point is one hundredth of a percent.
India’s weather office has forecast a normal monsoon rainfall after two-years of deficiency, which should further ease inflation concerns. The other risk to inflation is from demand pressure arising from the rise in wages of government employees with the implementation of the seventh pay commission.
Retail inflation in vegetables eased to 0.54% in March from a high of 6.4% in January. Pulses inflation fell to a six-month low of 34.15% in March. Inflation in the foods and beverages category declined to 5.27% in March from 5.52% in February.