Global investment banks such as Nomura, Deutsche Bank and Barclays in separate notes said inflation data is largely in-line with estimates but since it is below Reserve Bank of India’s target, it has opened room for another rate cut possibly in August meeting.
India’s retail inflation for May inched up to 3.05 percent—7-month high—from 2.92 percent in April which was revised upwards to 2.99 percent, driven by an increase in vegetable prices.
The latest price data released by the Central Statistics Office showed that consumer price index (CPI)-based inflation, which measures changes in shop-end prices, remained comfortably within the Reserve Bank of India's target level of 4 percent.
“CPI inflation of 3.05 percent was broadly in-line with expectations. But, food inflation unsurprisingly picked up, on the other hand, core inflation eased as expected to 4.1 percent from an upwardly revised 4.7 percent in April,” Nomura said in a report.
The global investment bank expects headline inflation to average 3.5 percent in H2, and sees up to 25 bps rate cut in August on below-target inflation and likely growth disappointment.
Another global investment bank, Barclays expects the core inflation to move. The uptick in May CPI print was driven by a rise in food prices and adverse base effects.
“Inflation appears to be broadly tracking what RBI anticipates in its projections. We lower FY20 CPI forecast to 3.7 percent from 4.1 percent previously. Another 25 bps repo rate cut in August is our baseline forecast,” said the note.
India’s industrial output grew 3.4 percent year-on-year (YoY) in April to a 6-month high, according to the Index of Industrial Production (IIP) data released by the government on June 12.
The Industrial output, or factory output, is the closest approximation for measuring the economic activity in the country's business landscape.
Deutsche Bank in a note said that even though the April IIP data is encouraging, the overall growth momentum remains weak. It expects one more 25 bps rate cut in August/October policy meeting.
The Indices of Industrial Production for the mining, manufacturing and electricity sectors for April 2019 grew 5.1 percent, 2.8 percent and 6.0 percent, respectively, compared to April 2018.
Primary goods production for April stood at 5.2 percent and that of capital goods was at 2.5 percent. Production of consumer durables grew at 2.4 percent and consumer non-durables grew at 5.2 percent for the month of April.
"IIP growth for April improved to 3.4 percent (0.5 percent growth expectation) after remaining flat in the previous two months. The surprise rise was largely due to capital goods, which are typically volatile in nature. Given the volatility in the IIP series, we prefer to analyse on trend basis (3MMA)," Edelweiss said in a note.
"Going ahead, we expect IIP to remain subdued in the near term as headwinds from the global economy persist and liquidity needs to be a lot easier before it boosts consumption. However, government spending could provide some support," it said.
Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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