RBI to go for rate cut, project lower inflation, higher growth

Inflation outlook will continue to remain low at least until Sep-Oct, encouraging RBI to make a rate cut on Friday

RBI is expected to cut the policy rate primarily because of a sharp drop in wholesale price inflation as well as so-called core inflation. Photo: Abhijit Bhatlekar/ Mint 

                  There are two compelling reasons for the Reserve Bank of India (RBI) to stick to its March stance that there is very little room for monetary easing when it announces the annual monetary policy for fiscal 2014 on Friday—elevated retail inflation and a record-high current account deficit (CAD).

March consumer price, or retail, inflation was 10.4% and a reduction in fuel subsidies will not contribute to its moderation. CAD touched a record high of 6.7% in the third quarter of fiscal 2013, taking the average in the first nine months of 2012-13 to 5.4%. CAD is expected to drop in the fourth quarter, but it could still be around 5.1% for the fiscal year and this weighs against a rate cut.

Yet, the Indian central bank is expected to cut the policy rate primarily because of a sharp drop in wholesale price inflation as well as so-called core inflation, or non-food, non-oil, manufacturing inflation.

Overall, all growth indicators remain considerably weak despite a 0.6% rise in factory output in February against analysts’ estimates of a 1.5% contraction.

 

 

Shiv Kumar

PGDM 2nd SEM