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MOSL: ECOSCOPE-Headline CPI inflation lowest in 19 months; Expect another round of rate cut

ECOSCOPE: Headline CPI inflation lowest in 19 months; Expect another round of rate cut

 

• India's headline CPI inflation eased to a 19-month low of 2% in Jan'19 from 2.1% in Dec'18, much lower than our estimate of 2.7% and the market consensus of 2.5%. Jan'19 was the ninth consecutive month to record lower-than-expected inflation number.
• Lower-than-expected inflation was entirely on account of food prices, which declined 2.2% in Jan'19, as against our expectation of a 0.8% decline. Core inflation eased to a 10-month low of 5.3%, in line with our expectations.
• Separately, IIP rose 2.4% YoY in Dec'18, slightly lower than our expectation of 2.6%, but much higher than the market consensus of 1.6%. An adverse base hurt growth (Dec'17: 7.3%).
• The RBI recently revised its 4QFY19 inflation projection - down to 2.8%, which we believed was aggressive. Jan'19 CPI inflation data, however, suggests that 4QFY19 inflation is likely to come in line or even slightly lower than the RBI's forecast. Hence, we believe that a rate cut is almost a certainty in the Apr'19 policy meeting. Therefore, the pertinent question now is, "Can there be a mid-policy MPC meeting to cut rates?".