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Inflation may rise further in coming months, but RBI not likely to cut rates; check what it can do

The Indian economy is seeing a slowdown for sometime now, largely on account of weakness in consumption demand.

Even as the retail inflation may surge in the coming months, RBI is not expected to cut rates in the upcoming monetary policy review in October, a report said. However, the central bank would continue with its monetary easing exercise, CARE Ratings also said. “The RBI is likely to look for the transmission of the previous rate cuts with the introduction of the new external benchmark before cutting rates further,” it added. The central bank may cut rates by another 40 bps in the remaining financial year, CARE Ratings added.

On Thursday, the consumer price index (CPI) measured retail inflation inched up to a 10 month high of 3.21 per cent in August 2019, mainly on account of surge in prices of food articles and miscellaneous items. CARE Ratings had estimated the retail inflation to grow by 3.3 per cent during the month.

Also read: IMF on India’s economic growth: It’s ‘much weaker’ than expected; lists these 3 key concerns

However, some expect the RBI to cut repo rates in the next MPC meeting. “With the CPI inflation recording only a mild increase in August 2019 despite the sharp uptick in the food inflation, we continue to expect the MPC to reduce the repo rate by 15-25 bps in the October 2019 policy review, given the continuing concerns related to economic growth,” Aditi Nayar, Principal Economist, ICRA said.

Meanwhile, IIP saw a 9-month high growth of 4.3 per cent in July, owing to rise in activity in mining, manufacturing and electricity. The Indian economy is seeing a slowdown for sometime now, largely on account of weakness in consumption demand. In Q1FY20, GDP recorded a dismal growth of 5 per cent. Many brokerages, even global institutions such as the IMF have cut growth forecasts for India for the entire fiscal.

Source: Financial Express