March inflation slows to 5.96 per cent, gives RBI room for rate cut: Experts

NDTV Profit Desk

15 Apr 2013, 12:27 PM IST

March inflation slows to 5.96 per cent, gives RBI room for rate cut: Experts

India's wholesale price index (WPI) rose a slower-than-expected 5.96 per cent in March, the lowest rate in more than three years, government data showed on Monday.

Analysts polled by Reuters had expected wholesale prices, the main inflation measure, to rise an annual 6.4 per cent, slower than an annual rise of 6.84 per cent in February.

The reading for January was revised up sharply to 7.31 per cent from 6.62 per cent.

Core inflation eased to around 3.5 per cent from 3.8 per cent in February, analysts said.

Commentary

Radhika Rao, economist, DBS, Singapore

"March WPI inflation retreated at a faster than anticipated pace, reflecting the moderation in food costs as also flagged by the CPI inflation outcome last week. While the currency movements partly mitigated the impact of the slowdown in the international fuel commodity prices, core readings remain subdued below the 4 per cent mark. At the margin, we note the sharp upward revision in January numbers, thereby infusing some doubts on the true extent of deceleration in March."

"On rates, the RBI will be in a tough spot as the recent deterioration in the current account position warrants rates to be left high to cool the economy, though the softer inflation numbers provide a window to ease with an eye on supporting the faltering growth outlook. Odds for a rate cut in May have risen after today's numbers."

Nitesh Ranjan, economist, Union Bank of India

"Inflation was likely to be lower this time given significant correction in PMI input-output prices for March; however, the provisional data is a big positive surprise."

"Inflation below 6 per cent level provides room for RBI to ease the policy rate next month. We are expecting a 50 basis points policy easing during the first half of the current fiscal year. What would be more important to watch out is transmission to credit markets which has been quite subdued in recent past."

Anjali Verma, economist, PhillipCapital, Mumbai

"It is a fairly good number, in line with my expectation of 6 per cent. The spike in the January number is due to the revision in the LPG and bulk diesel prices. I am expecting inflation to fall further below 6 per cent and continue the downtrend till October. This reinforces my call for a 25 basis points rate cut in the May policy."

Shubhada Rao, chief economist, Yes Bank, Mumbai

"The decline in core inflation represents compression in demand which is comprehensive. And this was corroborated with the PMI data as well. The recent sets of data indicates that a 25 basis points rate cut is on the cards along with measures to support liquidity, which could be combination of cash reserve ratio cut and open market operations. However, we expect CRR cut of 50 basis points for the entire 2013/14 year."

"However, there has been a sharp revision in the inflation data for January, and we need to monitor reasons for that adjustment, and then we can take a further call."