EUR 125.00 For Business Accounts Only

MOSL: ECOSCOPE-Headline CPI inflation at four-month high; A 25bp rate cut in April policy appears inevitable

ECOSCOPE: Headline CPI inflation at four-month high; A 25bp rate cut in April policy appears inevitable

 

• India's headline CPI inflation inched up to a four-month high of 2.6% in Feb'19 from 2% in the preceding month. The number is higher than both our estimate and consensus of 2.4%.
• Higher-than-expected inflation can entirely be attributed to food prices, which declined 0.7% in the month, lower than our estimate of a 1.1% decline. Core inflation was unchanged at 5.3% (our estimate: 5.2%) in Feb'19.
• Separately, IIP growth slowed to 1.7% YoY in Jan'19, lower than our estimate/consensus of 2.9%/2.1%, owing to a decline in capital goods and intermediate goods output.
• In its for FY19, the RBI had revised down its 4QFY19 inflation projection to 2.8%. However, based on Jan-Feb'19 data, we believe that 4QFY19 inflation should undershoot the RBI's forecast. We also expect inflation to remain benign at sub-3.5% in 1HFY20. Thus, there is a very high probability of a 25bp rate cut in the April policy meeting. However, notwithstanding the low inflation projections, we believe that the decline in the domestic savings rate limits the scope for a series of rate cuts in FY20.