CHENNAI: Retail inflation has continued to fall for the third consecutive month, standing at a 13 month low of 4.31 per cent during the month of September. The continuing deceleration has begun speculations of there being enough room for yet another rate cut from the RBI, some experts indicating that one in December might be possible.
The fall in retail inflation, which stood at 5.05 per cent in August and 6.07 per cent in July, has primarily been driven by falling food prices. Food inflation has been a major source of concern for monetary policy makers, especially since they have ruled on the higher side for a while
According to data from the Ministry of Statistics and Programme Implementation (MOSPI), growth in food prices has eased to 3.88 per cent compared to 5.91 per cent in August. However, falling food inflation is a marked change from the past few years. MOSPI data shows that food inflation averaged 8.46 per cent from 2012 until 2016, reaching an all time high of 14.72 per cent in November, 2013 and a record low of 2.15 per cent in July, 2015.
The figures are likely to further support decisions pushing for a low interest regime, especially since most regions have seen a better than average monsoon. The Reserve Bank takes into account retail inflation while deciding on its key lending rate and it has been mandated to contain inflation at 4 per cent, within 2 per cent range on either side.
The RBI has already cut rates by 0.25 per cent to 6.25 per cent this month and with inflation decelerating a little, it might choose to cut rates again to boost industrial growth, which has been pushed into the negative zone. “The latest retail inflation print is likely to give the central bank some comfort after its latest cut and opens up a possibility of another cut in rates in December,” pointed out Rishi Shah, Economist, Deloitte India.
“Further, stability in food prices in the coming months is likely to give credence to the fact that the momentum in food inflation has witnessed a downward shift in the near term….. the decline in inflation is on the back of a decline in vegetable prices while overall food inflation has also come down. This possibly shows that the positive effects of a good monsoon have started to flow through the economy. Further, prices of pulses have also declined…,” she added.
Meanwhile, Dhiraj Sachdev, Fund Manager, HSBC Asset Management said that a rate cut by December is a distinct possibility. “We can expect another rate cut of 25 basis points by the end of the calendar year, and if inflation sustains in the early part of next year then we could see more rate cuts. We do expect 50-75 basis points cut in the next 12 months,” he said.