The Reserve Bank of India (RBI) is likely to keep the repo rate unchanged at 6.50 percent in the April monetary policy despite India’s headline inflation in January eased to 5.10 percent, economists said.
This is because experts said that the central bank will focus on bringing inflation to its medium-term target of 4 percent and also due to the risk of food inflation.
“We expect inflation to print close to 5 percent in the coming two months and do not see any imminent changes in policy stance or rate by the RBI for now,” said Sakshi Gupta, Economist at HDFC Bank.
Adding to this, Gaura Sen Gupta, Economist, IDFC First Bank said the key risk to the inflation outlook remains from food, which has been volatile, due to successive supply-side shocks. At the same time, growth recovery has held up providing policy space to remain focused on inflation.
The data released by the Ministry of Statistics and Programme Implementation on February 12 showed India's headline retail inflation rate decelerated to a three-month low of 5.10 percent in January.
The Consumer Price Index (CPI) inflation print in December 2023 was 5.69 percent.
At 5.10 percent, the latest CPI inflation figure is as per expectations, with economists having predicted prices likely rose 5.09 percent year-on-year in the first month of 2024.
The inflation numbers came days after the RBI's Monetary Policy Committee 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.
Few economists are of the view that the central bank may cut repo rate in August monetary policy and may change stance.
"We foresee cumulative rate cuts of 50-75 bps, commencing in the August 2024 meeting, and a stance change in the preceding review, after there is some visibility on the monsoon turnout." said Aditi Nayar, Chief Economist, Head Research and Outreach at ICRA Ltd.
In January, core inflation - or inflation excluding food and fuel - fell further to 3.6 percent from 3.9 percent in the last month of 2023.
Akhil Mittal, Senior Fund Manager-Fixed Income, Tata Mutual Fund said core inflation at 3.6% is a big relief and should push headline inflation towards RBI target of 4% over time.
He further added that softening of core inflation should provide confidence to trajectory of inflation moving as expected. We think RBI would rather continue with stability priority and continue maintaining 4 percent inflation target as sacrosanct, and hence we do not see premature easing from RBI.
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