RBI not to cut rates in next monetary policy despite fall in retail inflation: economists
PremiumRBI is likely to adopt a cautious stance because of concerns that inflation may quicken on rise in oil prices and implementation of the 6th Pay Panel recommendation, say economists
New Delhi: Economists rule out a policy rate cut in the next monetary policy announcement of the Reserve Bank of India (RBI) on 6 June despite retail inflation slowing to a record in April.
RBI is likely to adopt a cautious stance because of concerns that inflation may quicken on an increase in oil prices and the implementation of the 6th Pay Commission recommendation of higher allowances for government employees, they said.
Consumer price inflation is likely to hover around 3-3.5% in the coming months mainly on account of falling food prices and controlled core inflation, which excludes food and fuel prices, the economists said.
In March, inflation measured by the consumer price index (CPI) quickened to 3.8%, a five-month high, before falling in April to 2.99%.
“We expect CPI to stay below 3% till July with a possibility of it going down to even 2.5% before moving up, but still staying below 4% till October " said Soumya Kanti Ghosh, chief economic advisor to State Bank of India(SBI).
Falling prices of food, especially vegetables and pulses, are contributing to low food-price inflation. Vegetable prices have declined for eighth straight months and pulse prices for five. Prospects of normal monsoon rainfall should keep food prices low.
An increase in the minimum support price the government pays farmers for their produce and implementation of the goods and services tax (GST) in July may cause a small uptick in the inflation rate, said Aditi Nayar, principal economist at rating company ICRA Ltd.
Core inflation, which excludes food and fuel prices, also eased appreciably to an 18-month low of 4.5% in April 2017 from 4.9% in March 2017.
Even so, economists are betting against a rate cut by RBI in its June meeting.
“Although there was a fall in crude oil prices recently, there are expectations of global oil prices increasing again based on the decision that OPEC could take concerning output later this month. Apart from this, inflation-impact of GST, and implementation of the pay commission and HR (house rent) allowance leave less room for a rate cut at this point of time" said Madan Sabnavis, chief economist at ratings company CARE Ltd.
RBI emphasized inflationary risks in its last monetary policy statement in April. Currently, it is maintaining a neutral monetary policy stance.
