Country's retail inflation has accelerated in January and will probably ease in coming months, experts said. According to government data released on Wednesday, the Consumer Price Index (CPI)-based retail inflation inched up to 7.59 percent in January to hit a six-year high on costlier food items.
Analysts from various brokerage houses and research firms believe inflation will remain in the range of 6-7 percent in upcoming months and fall near 5 percent in mid-2020.
The food inflation in January 2020 was 13.63 percent, compared with (-) 2.24 percent in January 2019. However, it is down from 14.19 percent in December.
Here's what experts are saying on this:
Morgan Stanley expects inflation to remain above the 7 percent mark over the next 1-2 months and then to decelerate below 6 percent mark by June.
Nomura said that January month witnessed the peak of stagflation and expects lower inflation going ahead.
“January marks the peak inflation reading for this year and current trends. Data for the first 11 days of February shows that vegetable prices have contracted,” Nomura said.
However, the government hiked the LPG cylinder price that is likely to add 15 bps to headline inflation.
Nomura sees inflation to average 6.5 percent in Q1CY20, 4.7-4.6 percent in Q2 & Q3CY20 & 2.4 percent in Q4CY20.
Amid high inflation, brokerages are of the view that the Reserve Bank of India (RBI) will hold the repo rates steady for a long time.
Deutsche Bank expects CPI inflation to start easing from February onwards and forecast one last 25 bps repo rate cut in August with accommodative stance to support growth.
“The Reserve Bank of India will have no choice but to keep policy repo rate steady for a long time,” Deutsche Bank said.
CLSA opined the same view saying that the near-term rate cut seemed difficult with inflation above the RBI’s target.
“Recent cool-off in onion and crude prices should moderate CPI inflation. The rebound in electricity production may help the January 2020 IIP,” CLSA said.
HSBC expects RBI to cut the repo rate by 25 bps in June 2020 as it forecast inflation to fall to 5 percent by mid-2020.
Domestic brokerage Kotak Institutional Equities also expects CPI inflation to have peaked in January and the CPI trajectory to remain mostly above 6 percent through H1FY21.
Despite weak growth, the RBI’s Monetary Policy Committee (MPC) is expected to stay on hold in H1FY21, it said adding that the room for additional easing depends on evolution of growth-inflation mix.
Meanwhile, India's Industrial production dipped to 0.3 percent in December 2019 against 2.5 percent in the year-ago month on a poor show by the manufacturing sector.
First Published: Feb 13, 2020 12:51 PM IST
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