New Delhi: With inflation expected to remain below 4 percent, the RBI has space to cut the lending rate further to revive growth which slipped to a six-year low in the April-June quarter.
The CPI-based inflation is projected to be in line with RBI’s estimate in the remaining part of the fiscal. The key macro indicator is likely to be in the range of 3.5-3.7 percent in the second half of FY20.
Retail inflation, measured by year-on-year changes in the CPI, moved in a narrow range of 3.1-3.2 percent between June and August.
While food inflation picked up, fuel prices moved into deflation during this period. Inflation excluding food and fuel softened in August.
“It is in this context that the MPC (Monetary Policy Committee) decided to continue with an accommodative stance as long as it is necessary to revive growth while ensuring that inflation remains within the target,” the RBI said.
The RBI’s September round of Inflation Expectations Survey indicates that households expect inflation to rise by 40 basis points over a 3-month ahead horizon and 20 basis points over a one-year ahead horizon.
“With inflation at sub 4 percent in foreseeable future and widening output gap, we continue to see rate cut cycle extending beyond October by another 50-65bps+, depending on the incoming data ahead,” said Madhavi Arora, Economist (Fx & Rates) at Edelweiss Securities.