RBI Likely To Keep Policy Rates On Hold, Say Analysts

Retail inflation eased in November after holding above 7% for two straight months, but remained beyond the RBI's upper bound of the 2-6% target.

RBI Likely To Keep Policy Rates On Hold, Say Analysts

Retail inflation eased in November after holding above 7 per cent for two straight months, but remained beyond the upper bound of the 2-6 per cent target, meaning the central bank is likely to leave policy rates on hold to support the economy, analysts said.

November's annual retail inflation was 6.93 per cent, lower than the 7.1 per cent forecast in a Reuters poll of economists and down from 7.61 per cent in October, government data showed on Monday.

Here is what analysts said on November's inflation print:

Kunal Kundu, India Economist, Societe Generale, Bengaluru

"The lower headline inflation is mainly due to easing of food inflation to 9.4 per cent from 11.1 per cent recorded in October. In fact, excluding the two most volatile food items, pulses and vegetables, CPI would have dropped below 6 per cent."

"What is worrying is stabilisation of core inflation at an elevated 5.8 per cent as this could result in higher inflation becoming structural."

"We believe that RBI, while continuing to support growth through its monetary policy measures, would be in a position to eventually cut the policy rate only during Q2 2021."

Sujan Hajra, Chief Economist, Anand Rathi Securities, Mumbai

"The major reason for the inflation was due to food prices, particularly eggs, meat, pulses and edible oil. Going by the seasonality, food prices rarely fall in November and December and that seems to have played out."

"Even now there is not much pricing power in the manufacturing sector. We would expect a much bigger fall in the next month and will be surprised if the inflation is higher than 5.5 per cent in December."

"However, the inflation is still ahead of RBI's expectations and the number is reassuring the market that RBI is still not done with rate cuts."

Anagha Deodhar, Economist, ICICI Securities, Mumbai

"This CPI print is slightly lower than our expectation. However, if you compare it to the October 2020 number, inflation in November has come off by 70 basis points."

"Food inflation has come off significantly, although some items, especially protein products, are still recording double-digit inflation. We do expect some softening in food inflation in the next two to three months."

"Our calculation shows that core inflation for Nov 2020 is 5.7 per cent, little changed from the preceding month. Hence, the intervals of the CPI print are not very encouraging."

"We maintain our view of no further monetary easing in the next future despite this inflation print."

Sakshi Gupta, Senior Economist, HDFC Bank, Gurugram

"Inflation print surprised in November, falling more than expected to 6.9 per cent. The majority of this drop came on the back of falling food prices, particularly vegetables."

"There was some moderation recorded in protein items such as pulses, meat and fish as well, although inflation remained in double digits. We expect inflation to gradually track lower in the coming months, 5.5 per cent-6.0 per cent, with a significant correction in December, in part due to a favourable base effect."

Sreejith Balasubramanian, Economist - Fund Management, IDFC AMC, Mumbai

"November CPI of 6.9 per cent y/y showed some signs of easing sequential price pressure in food items, particularly vegetables, fruits and even some of the protein items, while pulses, oils and fats still continued to show some price momentum."

"CPI excluding food and fuel also eased sequentially. With food price momentum also easing in the WPI released today, it is now to be seen how broad based this food price disinflation cycle becomes, how much pace it gathers and for how long."

Rupa Rege Nitsure, Chief Economist, L&T Financial Holdings, Mumbai

"CPI has partially eased, as we had expected, due to a sequential easing in the prices of food and beverages. But the print at 6.93 per cent is still very high and core inflation remains elevated at 5.57 per cent."

"I agree with the MPC view that supply management of food articles and other essentials is more important at this juncture. However, higher fuel inflation due to higher taxes and its broad-based impact on transportation cost remains a major concern."

Garima Kapoor, Economist - Institutional Equities, Elara Capital, Mumbai

"Ease in headline inflation today was broadly led by moderation in food inflation, especially perishables aided by Kharif arrivals."

"High frequency data of retail food prices suggest the prices of perishables have begun to decline meaningfully and this will likely keep headline inflation at about 6 per cent for the rest of FY21. We see no further scope of rate cuts and expect policy repo rate to remain unchanged at least until the first half of 2021."