EUR 125.00 For Business Accounts Only

MOSL: ECOSCOPE-Higher inflation, slower growth put the RBI in a tight spot-Little room to cut rates in June meeting

ECOSCOPE: Higher inflation, slower growth put the RBI in a tight spot; Little room to cut rates in June meeting

 

• CPI inflation increased to a five-month high of 2.9% YoY in Mar'19 from 2.6% a month ago. The number was exactly in line with our estimate but slightly higher than consensus of 2.8%. The rise in CPI inflation can primarily be attributed to food prices, which increased 0.2% YoY in Mar'19 after declining for the preceding five months.
• Core inflation (all items excluding 'food & beverages' and 'fuel & light') weakened to 5% in the month. Inflation in 'core services' eased further to 6.4% in Mar'19 from 6.9% in the previous month.
• Growth in the Index of Industrial Production (IIP) plummeted to a 20-month low of 0.1% in Feb'19. The index had grown 1.4% in Jan'19 and 6.9% in Feb'18. The IIP growth number is way lower than both our estimate of 2.3% and consensus of 2.0%.
• In its first for FY20, the RBI had revised down its 4QFY19 inflation forecast to 2.4%. This implies that it was expecting inflation of 2.6% in Mar'19, much lower than the actual figure of 2.9%. Notwithstanding the RBI's headline inflation expectation of ~3% in 1HFY19, our expectation is more around 3.3%. If this happens, there is very little room for the RBI to cut interest rates in its Jun'19 policy meet.