CPI inflation eases to 6.58%: Experts say RBI may go for up to 50 bps rate cut

India's retail inflation accelerated to 6.58 per cent in February, government data showed on Thursday, lower than the 6.80 per cent forecast in a Reuters poll of analysts.

Data also showed that the country's industrial output rose 2 per cent in January from a year earlier. Analysts polled by Reuters had forecast a rise of 0.7 per cent.

Here’s what economists and market experts have to say:

Abheek Barua, Chief Economist, HDFC Bank
In the near term, capital outflows remain the biggest risk even if the virus is contained and production facilities are not affected. Services such as aviation and tourism will hamper GDP growth. In a situation like this where a supply shock destroys demand, the case for a rate cut and substantial fiscal support becomes strong even if that means an increase in the fiscal deficit. This is also a strategic opportunity for government to both borrow at low rates and build oil reserves.

Rahul Bajoria, Chief India Economist, Barclays
CPI came in weaker than expected, largely due to the lower food prices. CPI is set to re-enter the Reserve Bank of India's (RBI) target band in March, as lower energy prices, pullback in demand and global headwinds are mounting. The RBI is likely to throw caution in the wind and could even move inter-meeting as uncertainty is rising.

Upasna Bhardwaj, Economist, Kotak Mahindra Bank
The moderation in inflation has expectedly been led largely by food inflation while core inflation remains muted amidst tepid demand. We expect the inflation trajectory to continue to moderate going ahead led by deflationary trends from falling crude oil prices, lower food prices and weak demand. With domestic and global growth expected to face downside risks from the spread of COVID-19 and deflationary forces emerging we see room for up to 50 bps of rate cut by the MPC, with any further easing contingent on the evolving growth environment.

Garima Kapoor, Economist-Institutional Equities, Elara Capital
Monetary Policy Committee (MPC) is expected to deliver a 35 bps repo rate cut on April 3. While today's CPI print of 6.58% remains marginally above the Reserve Bank of India's projected rate of 6.5% for Q4FY20, an expected moderation in headline print following crude oil's historic meltdown would provide the RBI a much-needed space to address growth slowdown that are likely to be amplified amid rising risks of global recession. While the clamour for 'out of policy cut' has increased, we believe, the situation currently does not warrant an emergency monetary policy response. On the contrary, the need of the hour is to ensure targeted economic policies for companies hit by breakdown of supply chain.

Madan Sabnavis, Chief Economist, Care Ratings
An IIP growth of 2% came in slightly lower than our expectations of 2.4%, while the CPI inflation of 6.6% was higher than our forecast of 6.1%. Both consumer durable and non-durables have witnessed negative growth, and given that January was not the period where the Covid-19 was active in other parts of the world, the impact on supply chains will be felt more in February and March. The CPI inflation number and its possible movement to 5.5% in March may not justify rate action by the RBI. However, on account of sending positive signals to the market on supporting the economy at the time of the pandemic covid-19, a rate cut could still be on the anvil.

Rupa Rege Nitsure, Group Chief Economist, L&T Financial Holdings
CPI has eased on the back of easing food inflation and core inflation. This means the impact of tariff adjustments in certain services has started tapering and food prices are getting normalised. The plunge in oil prices should pull down inflation further in the coming months. On the other hand, industrial production growth has returned to the positive zone due to an uptick in the output of primary goods and select consumer goods such as textiles, wood products, and leather products. As the RBI is providing support through unconventional measures and currency swaps, we do not see any need for a rate cut.

Sujan Hajra, Chief Economist, Anand Rathi Securities
The number came in lower than expected. While the inflation is still above RBI's comfort zone, given the global situation and the Indian financial market, this creates space for further liquidity infusion and significant rate cut. We expect RBI to make a 50 basis point rate cut. Prices of vegetables like onions were the main driver of inflation. Now with extreme inflation cooling off, the inflation trajectory is likely to move towards the 6% territory in the near term. Additionally, cooling off of global crude prices will also positively impact India's inflation outlook.

Anagha Deodhar, Economist, ICICI Securities
This inflation number is slightly lower than our expectation, mainly due to softer inflation in food and miscellaneous items. Food prices seem to have cooled faster than anticipated, leading to a much-needed drop in retail inflation. Apart from the "normalization" in food prices, coronavirus-related fears have also led to a sharp fall in some food items (such as poultry and eggs). Hence, we expect faster drop in food inflation going forward. Although, fuel inflation has inched up this month, we expect a steep fall going forward as global oil prices dive. Hence, headline inflation should ease in the coming months making room for the RBI to deliver a rate cut.