India’s wholesale price index (WPI) rose a lower-than-expected 7.25 percent in June from a year earlier, mainly driven by higher food prices, government data showed on Monday.
Analysts on average had expected an annual rise of 7.62 percent. Wholesale prices provisionally rose 7.55 percent in May. The annual reading for April was upwardly revised to 7.5 percent from 7.23 percent, the government said in the release.
Here is what experts have to say about the inflation data:
DARIUSZ KOWALCZYK, ECONOMIST, CREDIT AGRICOLE CIB, HONG KONG
“This is the lowest reading since December 2009 (except the one-off drop in January this year).
“The unexpected slowdown of inflation is fantastic news, despite the still elevated level: it opens the door for a rate cut already in July, and we expect a 25 bps move at the RBI meeting at the end of the month.
“As a result, we see a decline in INR OIS rates and government bond yields today. The INR should extend gains on hopes that monetary easing will boost growth, and on inflows into bond market by foreign investors.”
RADHIKA RAO, ECONOMIST, FORECAST, SINGAPORE
“Prima facie, softer-than-expected inflation print after downward revision in historical industrial production ups the scope of a rate cut at the late-July review. The decision will be a close call as inflation still holds above 7.0 percent, well above RBI comfort levels, thereby complicating the rate direction.
“With an eye on central bank rhetoric, we think the policymakers might tap on the available window to ease rates further, especially after the regional central banks have also resumed the rate-cutting cycle. Liquidity conditions have also stabilised since the beginning of July thereby lowering scope for a CRR cut.”
SONAL VARMA, EXECUTIVE DIRECTOR AND INDIA ECONOMIST, NOMURA, MUMBAI
“The WPI data is better than expected but the monsoons and high fuel prices still remain a concern. We don’t think this will affect the RBI policy decision on July 31. We see the core inflation at around 4.9 percent.”
JONATHAN CAVENAGH, SENIOR FOREX STRATEGIST, WESTPAC, SINGAPORE
“Any sign that inflation pressures are easing in India is welcome by the market as (in theory at least) it gives the RBI more room to potentially cut rates in the period ahead.
“USD/INR has fallen in the aftermath of softer inflation data, with the 1 month NDF slipping back to the 51.10/15 level.”
A. PRASANNA, CHIEF ECONOMIST, ICICI SECURITIES PRIMARY DEALERSHIP LTD, MUMBAI
“My suspicion is that data on electricity is not getting updated because we have not seen tariff hikes getting reflected in it.
“The headline number is artificially suppressed. All said and done, the manufacturing inflation rate is still 5 percent, and there’s no further improvement in the core inflation, which is around 4.8-4.9 percent, which is where it has been in the last three months.
“I don’t see momentum on the lower side for headline inflation in the coming months. I expect the Reserve Bank of India to keep status quo on rates on July 31.”
SHAKTI SATAPATHY, FIXED INCOME STRATEGIST, AK CAPITAL, MUMBAI
“The lower-than-expected print is encouraging with manufacturing inflation’s sequential fall during the first quarter. The quantum of diesel price hike coupled with weekly monsoon progress would drive the near-term inflation direction.
“With core inflation below 5 percent and nearly stable at around 4.86 percent over the previous month coupled with the transmission lag in the rate cut, we expect the central bank might go for a symbolic 25 bps rate cut in the forthcoming policy meet.”
SUJAN HAZRA, CHIEF ECONOMIST, ANAND RATHI SECURITIES, MUMBAI
“Despite the unexpectedly low number, the headline inflation is way above the Reserve Bank of India’s comfort zone. Hence, the case for easing of monetary policy is not there. The focus of the RBI will remain on improving liquidity.”
The Sensex reverses direction to be up 0.2 percent from down 0.1 percent ahead of the data.
The rupee strengthened further to 54.89 per dollar from 54.96 before the data.
Benchmark 10-year bond yield fell as much as 6 basis points on day. The benchmark five-year swap rate was down 4 bps at 6.90 percent, and the one-year swap rate dropped 5 bps to 7.50 percent post the data.