Pleasant retail inflation keeps RBI rate cut possibility in April solid
The pleasant headline consumer price index (CPI) inflation implies that the fourth quarter of FY25 inflation may undershoot the RBI's forecast by more than 40 bps, and could keep the rate cut possibility in April solid, industry experts said on Wednesday.
The year-on-year inflation rate eased to an 7-month low of 3.61 per cent in February this year, which is 0.65 per cent lower than the corresponding figure for January, as food prices came down further during the month.
"Broad-based moderation in food inflation, led by perishables and some protein goods, largely led to better-than-expected headline February CPI print," according to Emkay Global Financial Services' Chief Economist Madhavi Arora.
At the policy level, both the RBI and the government have implemented measures to revive growth, such as policy interest rate cuts and reduction in income tax to increase disposable income with households.
"To further stimulate growth, the RBI is likely to implement another repo rate cut in the next MPC meeting in April. While this move may be inflationary, it is necessary to support growth, particularly in segments like housing where credit support is essential,” Knight Frank India's National Director, Research, Vivek Rathi, said.
Concurrently, industrial output for January surged to 5 per cent, substantially outpacing the projected 3.5 per cent, indicating robust manufacturing activity and production strength across sectors.
"This dual economic surprise - inflation cooling more rapidly than anticipated while industrial production demonstrates unexpected vigour - creates an ideal macroeconomic environment likely to energise bullish market sentiment," HDFC Securities' Head of Prime Research, Devarsh Vakil, said.
The industrial performance was majorly supported by growth in manufacturing and mining output, while electricity growth moderated.
A sustained and broad-based improvement in consumption remains critical, especially given the context of trailing urban demand.
"The sustained easing of inflationary pressures, RBI’s policy rate cut, and lower income tax burden remain the tailwinds for consumption recovery. The improvement in consumption demand remains critical also from the standpoint of boosting the investment scenario," CareEdge Ratings' Chief Economist Rajani Sinha said.
