Focus shifts to April rate cut as inflation quickens

Retail inflation rose to a four-month high of 2.57% in February, but stayed benign leading to calls for the RBI for lower interest rates.

Samples of pulses are displayed in a wholesaler at Khari Baoli spice market in New Delhi (Representational Image) | Photo: Ruhani Kaur | Bloomberg

New Delhi: India’s inflation rebounded in February, but was still being enough to support calls for the central bank to lower interest rates at next month’s monetary policy meeting.

Consumer prices rose 2.57 percent last month from a year earlier, the Statistics Ministry said in a statement on Tuesday. That compares with the 2.4 percent median estimate in a Bloomberg survey of 34 economists.

Key Insights

Inflation has slowed sharply since last year because of a fall in food prices, and remains well below the Reserve Bank of India’s 4 per cent medium-term target. The central bank is forecasting inflation of 2.8 percent in the January-March quarter This is the last inflation print before the April 4 interest-rate decision and ahead of general elections that kick off next month. Calls are growing for the RBI to lower interest rates again after it surprised with a 25 basis-point reduction in February Governor Shaktikanta Das has expressed concerns about weakening economic growth. Indian lenders haven’t fully passed on the last interest rate cut to borrowers, adding pressure on the RBI to loosen policy further While softer inflation bolsters Prime Minister Narendra Modi in his re-election bid, subdued food prices also mean distress for farmers, a key voting bloc

What Economist Says

Ria Modh, an analyst with Stci Primary Dealer Ltd. in Mumbai, said calls for a rate cut in April will still be strong because of a revision in January inflation number to 1.97 percent, which is way below RBI’s target range. “If they need an investment demand, RBI needs to create an atmosphere where investment is boosted.”

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Consumer food prices fell 0.66 percent Fuel and light prices rose 1.24 percent Housing prices rose 5.10 percent Clothing and footwear prices rose 2.73 percent India’s factory output rose 1.7 percent in January, slower than the 2.4 percent gain in the previous month, data released separately showed India is due to release wholesale price inflation numbers Thursday- Bloomberg