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MOSL: ECOSCOPE-CPI inflation at 18-month low-Low inflation prints and weak growth momentum likely to drive rate cuts

ECOSCOPE: CPI inflation at 18-month low; Low inflation prints and weak growth momentum likely to drive rate cuts

 

• Headline CPI inflation stood at 2.2% YoY in Dec’18, in line with market consensus (our estimate: 2.3%) and slightly lower than 2.3% in the previous month. This was the lowest level of inflation in 18 months.
• Food prices declined by 2.5% YoY in Dec’18, sharper than our estimate of -1.7% YoY, largely on account of vegetables and cereals.
• Core inflation, however, eased marginally to 5.6% in Dec’18 from 5.7% in the previous month. This was much higher than our estimate of ~5%. Inflation in core services rose to a 48-month high of 7.4% in the month.
• In our view, low inflation prints and weaker growth momentum are likely to prompt the RBI to cut rates by 25bp in its monetary policy meeting next month. Further, depending on the Union Budget 2019-20, there could be another rate cut of 25bp in the April policy meeting, as inflation is likely to remain sub-4% by Mar'19.