Interest Rate Cut Hopes Intact As Inflation Remains Under RBI's Target: Experts

India's annual retail inflation picked up in April to 2.92 per cent compared with 2.86 per cent in March, government data showed on Monday. Analysts polled by Reuters had forecast April's annual increase in the consumer price index at 2.97 per cent.

COMMENTARY

Deepthi Mathew, economist, Geojit Financial Services, Chennai:

"The domestic economy has not yet started feeling the pressure from rising crude oil prices, with the growth rate of fuel and light marginally increased from 2.34% in March to 2.56% in April."

"With the inflation rate within the permissible level, the RBI might go for a rate cut in its next MPC meeting scheduled for June. However, the rising crude oil price is going to pose a big challenge for the central bank, as it could lead to an overall increase in the price level."

Madhavi Arora, lead economist, Edelweiss Securities, Mumbai:

"We see headline inflation averaging about 3.8% for FY20, but do reckon several uncertainties that cloud the outlook, namely monsoon, crude prices, global volatility and effective fiscal stance."

"We are in consonance with the RBI on near-term inflation dynamics and see another 25 bps cut in 1HFY20, most possibly in June itself."

"The bar for further cuts will be much higher and will be data-dependent. We see upside risks to the RBI's inflation trajectory in the latter part of FY20 and will closely watch out for the evolution of inflation amid various domestic and global idiosyncrasies and fiscal fragilities."

Sunil Sinha, principal economist, India Ratings & Research, New Delhi:

"I don't think there will be another rate cut in the forthcoming monetary policy meeting because the RBI has already used up most of the room available to it by cutting rates back to back."

"Even though overall CPI numbers are still moderate... there are some concerns not only domestically but also externally - the way trade frictions are flaring up, oil prices, monsoon predictions - all these are creating tremendous amount of uncertainty."

"The bigger worry now is food inflation. Overall food inflation is still somewhat benign, but there are many items under the WPI component where inflation is on a double-digit level on a sustained basis for the last six-eight months."

"One of the key things to watch out is the budget that the new government will come out with. The RBI could perhaps wait and watch before taking a call on policy rates."

Siddharth Purohit, research analyst, SMC Global Securities Ltd, Mumbai:

"We feel the RBI will look forward for the fiscal position of the new government and accordingly take a call on the future course of action on rates. However at the current level, it seems there is still some scope for rates to soften."

Sujan Hajra, chief economist, Anand Rathi Securities, Mumbai:

"The real policy rate is significantly higher than the upper limit which the RBI talked about, which is 150 bps. Given this, there is a scope for the RBI to cut interest rates. But since the recent rate cut has not been transmitted in the credit market, I don't think the RBI will be going for a rate cut in the immediate future."

"Rising fuel prices will definitely impact inflation in the coming months. However, in the next 12 months we don't see inflation crossing 5%, even after factoring in fuel prices."

"A major part of growth dissolution is influenced by cyclical factors. For example, lower credit growth to industries, particularly in the MSME sector; non-functioning of NBFCs and, therefore, lack of consumer credit, which is impacting durables and sector-specific things such as emission norms in the case of auto sector. We think growth in FY20 will be lower than FY19."

Garima Kapoor, economist and vice-president, Elara Capital, Mumbai:

"On the basis of the run-up in fuel prices from early April, we estimate an additional 8-10 bps impact on CPI when the government hikes prices."

"The dislocation of leveraged consumer demand due to a slowdown in the NBFC sector, continued weak terms of trade of the rural economy and limited fiscal space for the government to pump prime the economy remain key risks to growth in FY20."

"We believe the RBI will in FY20 revise downwards the GDP growth projection of 7.2%. We expect FY20 GDP growth to be 6.8-6.9%."

"The presentation of the budget by the new government in June-July and the performance of monsoon will determine the outlook for RBI's rate cuts. On the basis of the current dynamics, we have pencilled in 50 bps rate cut during Q2 and Q3 FY20."

Rupa Rege Nitsure, chief economist, L&T Financial Holdings, Mumbai:

"India's CPI inflation has inched up by just 6 bps over the previous month on 80-bps increase in food prices. But a significant deceleration in inflation for clothing and footwear and miscellaneous components has reduced core inflation from 5.06% in March to 4.57% in April. This reflects severe demand slowdown."

"Today's inflation print, combined with the fact that industrial production has contracted in March, suggests further scope for monetary easing. Going by the minutes of the last MPC meeting, I expect more members to vote for monetary easing in June."

Tushar Arora, senior economist, HDFC Bank, New Delhi:

"2.9-3.0% was the inflation path that the RBI outlined for H1 2019/20 in its April MPC meeting. It's comforting that despite the uptick in food prices, the inflation print has come in line with the RBI's estimates. This should keep the rate cut expectations intact for the markets."

"However, there are some uncertain factors, vis-à-vis monsoon performance, fiscal math of the new government, and food prices during the summer months, for which the RBI is likely to wait and gauge before moving next. Therefore, we expect a pause in the June policy. Any change in policy rates is likely to be in August."