Synopsis
Industry experts indicate that the favorable trend in CPI inflation may lead to a significant undershoot of the RBI's forecast, reinforcing the likelihood of a rate cut in April. With year-on-year inflation dropping to a seven-month low and robust industrial output, the economic environment appears conducive for growth.Key Takeaways
- Headline CPI inflation fell to a 7-month low.
- Rate cuts by the RBI may be on the horizon.
- Industrial output exceeded expectations, showing 5% growth.
- Inflation is moderating, creating a favorable economic climate.
- Consumption recovery is vital for boosting investment.
New Delhi, March 12 (NationPress) The favorable headline consumer price index (CPI) inflation suggests that the inflation for the fourth quarter of FY25 may fall below the RBI's expectations by over 40 basis points, strengthening the likelihood of a rate cut in April, as noted by industry experts.
The inflation rate year-on-year dropped to a 7-month low of 3.61% in February this year, which is 0.65% lower than the figure from January, attributed to a further decline in food prices during the month.
According to Emkay Global Financial Services' Chief Economist, Madhavi Arora, “A broad-based decrease in food inflation, particularly from perishables and select protein products, has significantly contributed to the better-than-expected headline CPI for February.”
On the policy front, both the RBI and the government have introduced measures to stimulate growth, including cuts in the policy interest rate and reductions in income tax to enhance disposable income for households.
Vivek Rathi, National Director of Research at Knight Frank India, remarked, “To further invigorate growth, the RBI is poised to announce another repo rate cut in the upcoming MPC meeting in April. Although this could be inflationary, it is essential to bolster growth, especially in sectors like housing that require credit support.”
Simultaneously, January’s industrial output surged to 5%, significantly exceeding the anticipated 3.5%, indicating robust manufacturing and production strength across various sectors.
Devarsh Vakil, Head of Prime Research at HDFC Securities, stated, “This dual economic surprise—with inflation decreasing faster than expected while industrial production shows unexpected strength—creates an optimal macroeconomic landscape likely to boost bullish market sentiment.”
The industrial performance was primarily driven by growth in manufacturing and mining output, although electricity growth showed signs of moderation.
A sustained and broad improvement in consumption is crucial, especially considering the backdrop of lagging urban demand.
Rajani Sinha, Chief Economist at CareEdge Ratings, noted, “The ongoing reduction in inflationary pressures, the RBI’s anticipated policy rate cut, and a decreased income tax burden are all favorable factors for a recovery in consumption. This enhancement in consumer demand is also vital for improving the investment climate.”
