India’s retail inflation slides; RBI may cut repo rate

Based on inputs by Shahid Kazi

India’s retail inflation slipped to 18-month low of 2.19 per cent in December 2018 largely due to lower food prices. The continuous lowering in the inflation rate may prompt the Reserve Bank of India (RBI) for a repo rate cut in its sixth and last bi-monthly policy meeting in the financial year 2018-2019 scheduled in February.

Shubhada Rao, chief economist at Yes Bank Ltd, believes the latest inflation numbers should trigger a debate among monetary policy committee (MPC) members and a rate cut should be a logical outcome.

“Given the near-term inflation trajectory and lower probability of negative shocks amid moderating global growth, a rate cut now could spur growth and address the issue of high real interest rate hampering investment activity. Ergo, should the need arise, going forward, for the Reserve Bank of India (RBI) to tighten, given global uncertainties, it can go ahead without serious implications on growth,” added Rao.

India’s Wholesale Price Index (WPI) based inflation softened to an 8-month low of 3.8 per cent in December 2018 following the lower prices of fuel and food articles as compared to 3.58 per cent in December 2017. In November, the WPI inflation slipped to 4.64 per cent from 5.54 per cent in October.

According to the official data, the rural inflation shed to 1.65 per cent in December 2018 from 1.71 per cent in November, urban inflation came in at 2.91 per cent from 3.12 per cent in November. The food price inflation in December 2018 was at -2.51 per cent vs -2.61 per cent in November. The CPI-based inflation in ‘housing’, ‘fuel, light’ and ‘clothing & footwear’ came down to 5.32 per cent, 4.54 per cent and 3.52 per cent from 5.99 per cent, 7.39 per cent and 3.53 per cent, respectively.

The vegetable and pulses CPI-based inflation in December 2018 stood at -16.14 per cent and -7.13 per cent as compared to -15.59 per cent and -9.22 per cent, respectively.

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