Thursday, 26 March 2015 12:13

Is Inflation Lower Enough For Mr.Rajan To Relax?

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Today we saw India inflation coming below expectation; same was reiterated by RBI gov. Mr.Rajan in last RBI meet. However question is how sustainable is it? Till what time will RBI wait for rate action?

INR appreciated post inflation data announcement to 61.4250 from 61.60, however import demand for USD again bring it back to 61.60 levels.

WPI (Inflation) came as low as 6.13%, expectation was 6.99%. This is close to July 2013 reading. RBI took rate action in October as WPI was around 7.2%. CPI was also read below its expectation at 9.87%. Mr.Rajan said that due to agriculture good output overall inflation may come down in next few readings.

We have RBI meeting on 28th January 2014, where we may not see any action but wait for inflation to come down sufficient for RBI to cut rates. Mr.Rajan has said to focus on various data in addition to WPI. We have reducing growth and negative industrial production at 2.1%.

Lower IIP, low growth, decreasing inflation may create space for RBI to decrease rate. We do not expect RBI to take any action in next meeting but around March RBI may be willing to support growth provided inflation remains stable.

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