- On Thursday, RBI surprised markets by reducing key policy rate
- Monetary easing by RBI comes amid cooling off inflation
- Food inflation has been negative in past 4 months
Consumer inflation reversed course and nudged up slightly in January but remained below the central bank's target for a sixth straight month, a poll by news agency Reuters predicted, supporting this week's unexpected move by policymakers to cut rates. On Thursday, the Reserve Bank of India caught financial markets off guard by reducing its key policy rate by 25 basis points to boost growth and as inflation has remained benign.
While a change in monetary policy stance to "neutral" was the consensus in a separate poll taken ahead of the February 7 meeting, only around a third of respondents expected any easing.
The latest Reuters poll of 30 economists surveyed before Thursday's RBI meeting suggested consumer price inflation accelerated to 2.48 per cent from a year ago, after slowing in December to its lowest rate since June 2017 at 2.19 per cent.
"The disinflation from food and fuel are probably going to start fading, we don't anticipate inflation to drag from these factors," said Vishnu Varathan, head of economics and strategy for Asia at Mizuho Bank. "We might see inflation normalizing back to their 3-4 per cent range by the middle of this year."
Food and beverage inflation accounts for nearly half of the overall basket and was negative in the previous four months.
Forecasts in the poll ranged from 2.00 per cent to 2.80 per cent. If the consensus is realised it would mark the sixth month in a row where inflation was below the RBI's medium-term target of 4 per cent.
"Even though inflation is expected to inch up, the evolution is likely to remain benign amid muted demand side pressures. This should provide the central bank room for another cut," said Shashank Mendiratta, economist at IBM.
But the disparity between core inflation, which is running closer to 6 per cent, and the headline figure remains wide and could weigh on the RBI's monetary policy path, said Prakash Sakpal, Asia economist at ING, citing similar concerns expressed by the new RBI Governor Shaktikanta Das.