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Business News/ Economy / Inflation is cooling but RBI has no reason to cut rates before June, say experts
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Inflation is cooling but RBI has no reason to cut rates before June, say experts

India's retail inflation fell to a three-month low of 5.1 per cent in January, supported by a slower rise in food prices. Core inflation continues to moderate.

Even though the current inflation rate is comfortably within the Reserve Bank of India's (RBI) upper tolerance band of 6 per cent, it remains above the central bank’s target of 4 per cent. Photo: Indranil Bhoumik/Mint (Mint)Premium
Even though the current inflation rate is comfortably within the Reserve Bank of India's (RBI) upper tolerance band of 6 per cent, it remains above the central bank’s target of 4 per cent. Photo: Indranil Bhoumik/Mint (Mint)

India's consumer price index (CPI)-based retail inflation fell to a three-month low of 5.1 per cent in January, supported by a slower rise in prices of food items. Core inflation continues to moderate, reaching its lowest level in more than 50 months.

Even though the current inflation rate is comfortably within the Reserve Bank of India's (RBI) upper tolerance band of 6 per cent, it remains above the central bank’s target of 4 per cent and the central bank may not start cutting rates in the first half of the financial year 2025 (FY25), according to experts.

Also Read: Twin boost for economy as factory output powers up, retail inflation cools

Rahul Bajoria, MD & Head of EM Asia (ex-China) Economics at Barclays expects the RBI to begin policy easing from Q2CY24. However, the bias will remain hawkish with the last mile of disinflation being the most challenging.

"We continue to expect cuts to start in June, although we highlight the risks of a delay with the governor signalling comfort on domestic growth and the Fed raising the bar for a March cut," said Bajoria.

Nikhil Gupta, Chief Economist, MOFSL Group does not expect any monetary policy action this year.

"We see inflation hovering between 5-5.5 per cent, led by food in the first half of the calendar year 2024 (H1CY24), before easing in Q3 towards 4 per cent and rising back to 4.5-5 per cent in the next two quarters. Thus, we don't see any monetary policy action based on inflation this year. It will be determined by the domestic growth trajectory (if it turns out much weaker than the general forecast of 6.5-7 per cent) or if the US Fed makes a sharp move," said Gupta.

Madhavi Arora, Lead – Economist at Emkay Global Financial Services underscored that the RBI's policy has been somewhat pegged to the Fed, specifically in the last two years, even as it formally targeted inflation.

Arora believes the RBI will not precede the Fed in any policy reversal in CY24, and policy management will have to stay vigilant amid global narratives.

Suman Chowdhury, Chief Economist and Head – Research, Acuité Ratings & Research said the upside risks from the continuing El Nino phenomenon and its impact on the rabi crop output can’t be discounted at this point. However, the retail core inflation is estimated to stand at 3.6 per cent in Jan'24, providing comfort to the central bank, as per Chowdhury.

"In the latest MPC meeting, RBI has already indicated its close watch on the 'last mile of disinflation’. Any change in the monetary policy stance and any rate cut is unlikely before August 2024. The rate decision by the Fed and other developed nations will also be a factor in the MPC stance in the current calendar year apart from the domestic inflation trajectory," said Chowdhury.

Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.

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Published: 13 Feb 2024, 10:26 AM IST
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