Rating outfits: Softening core inflation will let RBI cut rate

Last Updated: Thursday, March 14, 2013 - 23:07

Mumbai: Rating agencies Thursday said the drop in core, or non-food manufacturing, inflation below 4 percent in data for February should help the Reserve Bank to deliver a rate cut of 0.25 percent in its monetary policy review next week.

"Core inflation, an indicator of demand side pressures on prices fell below the 4 percent mark for the first time in past 35 months, strengthening the case for a repo rate cut by RBI on March 19," Crisil said in a note.

The agency said it expects a 0.25 percent cut in repo rate.

Data for February released earlier in the day said inflation increased marginally to 6.84 percent from 6.62 percent in January, driven by costlier food items and petrol.

India Ratings said RBI is likely to cut the repo, or the rate at which it lends to banks, by 0.25 percent at its mid-quarter review of the monetary policy on Tuesday.

"RBI may gradually ease the monetary policy given the decline in core (non-food manufacturing) inflation to 3.8 percent in February 2013," it said, adding the central bank will cut rates by up to 0.75 percent in the next fiscal.

The rating agencies were unanimous in attributing the rise in the overall inflation number to the push from impact of increase in fuel prices, but said one should not worry much as price increases help correct high fiscal deficit.

"Although these revisions have created upward pressure on inflation, they are absolutely critical for lowering fiscal deficit," Crisil said.

"The upward pressure on headline inflation is on back of upward revision of diesel prices and further decision to adjust prices on monthly basis introduced by Government in mid-January 2013," a note from Care Ratings said.


First Published: Thursday, March 14, 2013 - 23:07

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