A 25bps rate cut can send out right signal: Bk of Singapore

Also Read: March inflation number expected at 6.7%

A CNBC-TV18 poll suggests that our wholesale price inflation rate likely slowed marginally in March to 6.7% as compared to the 6.95% figure of February.

From February to March 2011, inflation went up in one month by 1%. If it went at that pace we would be in at 12% inflation. So that 1% in one month is a bad number.

The bigger concern seems to be what the second half of this year may throw up in terms of inflation numbers. "Last week’s industrial production numbers show that there is still quite a bit of a slowdown and you can attribute quite a lot of that to the monetary environment," says Jerram.

He says this slowdown can imply that inflation will come off as well. He gauges that the Reserve Bank of India is still a little bit uncomfortable about whether it’s under control in the long-term or whether maybe some expectations have become a bit sticky.

High inflation and inflationary pressures have been a problem for over a year now so he doesn’t expect to see a big drop in inflation in the second half of the new fiscal.

Most market players are putting their money on the RBI taking a rate cut, its first in almost three years after a series of interest rate hikes. Jerram says the RBI will want to go ahead with a rate cut in a calm manner, if it wants to send out the right signal that you are going to remain quite prudent and cautious.

“I think a 25 basis point rate cut would do that. I don’t think the decline or slowdown in inflation is really enough to merit a much more aggressive approach.”