India’s retail inflation eased in February, helped by smaller rises in food prices after edging up for six straight months, raising expectations of a central bank rate cut next month.
Analysts said Reserve Bank of India (RBI) Governor Raghuram Rajan could be encouraged to cut policy rates. Finance Minister Arun Jaitley has also stuck to a fiscal deficit target of 3.5% of GDP for next fiscal year in his third budget last month.
“For now, with inflation readings well below the central bank’s target, and the government delivering on its fiscal targets, the case for a 25bp cut at the April meeting remains on the table,” said Radhika Rao, an economist at DBS Bank in Singapore.
Jaitley hiked annual state spending for the farm sector by 44% for the next fiscal year to over $5bn and eased import curbs to restrain price rises.
Annual consumer prices, which the RBI closely tracks to set its interest rate policy, eased to 5.18% in February from a year ago, data released by the Ministry of Statistics yesterday showed.
Economists had forecast retail inflation to edge down to 5.60% in February compared with 5.69% in January.
The wholesale price index fell for a 16th straight month in February, declining an annual 0.91%, driven down by tumbling oil prices, data released by the Ministry of Commerce and Industry earlier showed.
The RBI aims to bring retail inflation down to 5% by March 2017 and 4% a year later. New Delhi expects depressed global commodity prices and subdued domestic demand to help achieve the target, opening the window for further monetary easing.
Retail food inflation in February eased to 5.30%, compared with 6.85% recorded the previous month.
However, Rajan remains worried about services inflation that has been sticky since September 2015, keeping household inflation expectations elevated and pushing up urban wages.
The central bank’s monetary stance should remain tight to ensure a durable reduction in inflation, supported by measures to boost food supply, the International Monetary Fund said earlier this month.
“The union budget for 2016-17, announced last month, has given due focus on boosting demand and encouraging domestic value addition. We have also seen that the fiscal framework will be adhered to by the government,” industry body Ficci said in a statement.
“Given this, we firmly believe that the Reserve Bank of India should supplement efforts of the government to strengthen demand and continue with its accommodative stance in the forthcoming monetary policy,” Ficci president Harshavardhan Neotia said.
“A further cut in the policy rate at this juncture and its transmission by the banks in the form of lower lending rates would benefit both companies and consumers alike and impart some momentum to the still weak investment and consumption cycle.”
What has left the industry further worried is: At the use-based classification of six industries, the index for capital goods was down as much as 20.4% in January, while that for consumer non-durables was down 3.1. Consumer goods sub-index remained unchanged.
“The Index of Industrial Production (IIP) numbers released last week reported negative growth for the third consecutive month in January and highlight that signs of pick up in the manufacturing sector remain elusive,” Neotia added.
“The manufacturing sector has continued to remain in the red for the last three months with both capital goods and consumer non-durables showing a decline in growth,” said Chandrajit Banerjee, director general of the Confederation of Indian Industry.
“At this juncture when the growth momentum is below expectations and the government has committed to stay the course of fiscal consolidation, CII is hopeful the RBI would work in sync with the government for building a resilient growth trajectory by initiating monetary easing measures to complement the supportive fiscal initiatives announced in the budget.”
Rising prices are squeezing the budget of Sanjay Kumar, a 38-year-old worker in New Delhi, who earns Rs10,000 a month.
“My biggest worry is rising household expenses and education costs for my three daughters,” said Kumar, who works as a housekeeper in a private company.


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