RBI likely to cut interest rates after Budget, says Upasana Bharadwaj

The Wholesale Price Index (WPI) of India in December 2014 had increased by 0.11% Y-o-Y against the forecast of 0.6% Y-O-Y by the economists in a Reuters poll. Apparently, the subdued oil prices in the international markets had helped India log this increase, thus gaining credence to the anticipation that the RBI might as well announce an early cut in interest rate.

WPI

The RBI data, released by the RBI on January 12, 2015 reflected the consumer price inflation showed an upward tick of 5% in December last year, which was well within the Central Bank’s mid term target of 6%. Analysts beg to differ to the anticipation of the RBI slashing the interest rate before the Union Budget.

Upasna Bhardwaj Economist ING Vysya Bank

Upasana Bharadwaj, Economist, ING India, said: “After the retail inflation data, the WPI print further reinforces the disinflationary pressures which will help RBI achieve its target of 6% by January 2016. While definitely the probability of February rate cut has increased we continue to be believe that RBI will wait for the Budget and then begin easing in March/April.”

The December 2014 WPI data was better than expected on lower food prices. The WPI inflation last month moved up only marginally to 0.11% Y-O-Y from market consensus of 0.4% and 0% in November 2014. While the surge in inflation was due to the fading off the favourable base effect, the lower than expected reading was on account of sharply lower food prices as second round effects of declining oil prices begin to show up, she pointed out.

Food inflation increased by 5.2% Y-O-Y after a 0.63% reading in November 2014. However, on a monthly basis, the index contracted by 1.9% M-O-M (-0.4% M-o-M in November). The sequential contraction was mainly led by 7.7% MoM decline in vegetable prices and -3% in fruits. As expected, declining oil prices contracted the Fuel Index by 7.8% YoY after a -4.9% YoY reading in November. Last, but not the least, the core inflation also eased to 1.6% Y-O-Y from 2.2% Y-O-Y in the previous month.

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