Top economists on March 12 said the marginal fall in India's headline retail inflation for February has come in line with market expectations and if the easing of inflation sustains, the Reserve Bank of India (RBI) led monetary policy committee (MPC) may look at cutting the repo rate by the second quarter of the financial year (FY) 2024-25.
"Inflation was in line with expectations with core inflation continuing to slow. We expect headline inflation to move towards the 4 percent mark from Q2FY25 onwards. Strong growth conditions provide policy space to focus on inflation. We expect the RBI rate cut cycle to begin from August," said Gaura Sen Gupta, Economist, IDFC First Bank.
Additionally, Shubhada Rao, Founder, QuantEco Research, said that RBI would want to assess the monsoon season and take a decision to cut rates. “We are expecting the 2024 monsoon season to remain neutral. RBI’s action to cut rates would depend on two reasons, viz. domestic price pressure and the action by the Fed Reserve. We are expecting a rate cut window to be open for RBI by August MPC as the central bank would want to assess the impact of the monsoon. The central bank may look at cutting rates in October MPC,” Rao said.
Also read: India's February CPI inflation at 5.09%, core inflation drops further to 3.3%
And Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank, said that RBI will remain cautious on the volatile food inflation trajectory and hence prefer to remain in pause mode on rates till August policy. “But RBI’s measures to continuously fine tune liquidity and easing overnight rates closer to repo rate may see room for a shift in stance in the June policy,” Bhardwaj said.
Inflation print
India's headline retail inflation rate was largely unchanged at 5.09 percent in February, according to data released by the Ministry of Statistics and Programme Implementation on March 12. The CPI inflation print in January was 5.10 percent. While CPI inflation has extended its stay inside RBI's tolerance range of 2 percent to 6 percent to a sixth consecutive month, it has now spent 53 months in a row above the medium-term target of 4 percent.
The latest inflation data comes weeks before the RBI's Monetary Policy Committee (MPC) meets again on April 3-5. On February 8, the rate-setting panel left the policy repo rate unchanged at 6.5 percent for the sixth meeting in a row.
According to the central bank's latest forecast, CPI inflation is seen at 5.0 percent in the current quarter before easing to 4.0 percent in July-September. However, it is then set to rise to 4.7 percent in the first quarter of 2025.
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