 "Inflation down trend on; expectation of rate cut in Jan soars")
India’s wholesale price index-based inflation accelerated 7.18 percent in December, lower than the RBI’s projection of 8 percent, strengthening the case for a rate cut when the central bank meets to review its monetary policy this month-end.
In comparison, a Reuters poll of economists had projected the figure at 7.4 percent. It is also lower than the November print of 7.24 percent.
The Reserve Bank of India had projected December inflation of around 8 percent in its October policy review, when it had also raised its March-end inflation projection by 50 basis points to 7.5 percent.
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The fall in WPI inflation is in striking contrast with CPI inflation with rose to 10.56 percent. AFP[/caption]
The fall in WPI inflation is in striking contrast with CPI inflation with rose to 10.56 percent.
Primary articles inflation during the month was at 10.61 percent compared with 9.42 percent in November.
Food articles inflation stood at 11.16 percent as against 8.50 percent in the previous month. While food prices are keeping the headline inflation figure high, non-food manufacturing, or core inflation, has been falling and dropped to 4.5 percent in November.
In December, core inflation fell to 4.2 percent.
PMEAC chairman C Rangarajan told CNBC-TV18 that CPI inflation is higher owing to the higher prices.
He said food inflation remains a major concern and that rate cuts to depend on the inflation momentum.
He, however, said a 25 basis point rate cut is minimum in the RBI’s policy review on 29 January.
“If core inflation remains below 5 percent, it increases the chance of the central bank cutting rates by 25 basis point in January,” Rahul Bajoria, economist at Barclays Capital in Singapore, was quoted as saying in a Reuters report.
The RBI’s next policy review is on January 29, and analysts expect a cut of at least 25 basis points in the policy repo rate, which has been held at 8.0 percent for past the nine months despite a sharp slowdown in the economy.
Last week, government data showed that industrial output contracted 0.1 percent in November on weak capital goods production and muted consumer demand.
The RBI, in recent years one of the most hawkish central banks globally, was unable to shift its policy stance towards growth until December due to stubborn inflation, even as its peers in China, Brazil and South Korea became more aggressive on policy easing to support growth, according to a Reuters report.
With inputs from Reuters