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Inflation data is giving way to another interest rate cut, say Nomura, Barclays, Deutsche Bank

Retail inflation rose to a high point in seven months from 3.05% in May, from 2.99% in April, mainly as a result of an increase in vegetable prices.

Inflation data is giving way to another interest rate cut, say Nomura, Barclays, Deutsche Bank
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Global investment banks such as Nomura, Barclays and Deutsche Bank say the markets can expect a further interest rate cut by the Reserve Bank of India (RBI), possibly in the August meeting, as the inflation data for May comfortably fell within the 4-level central bank target. %.

Retail inflation rose to a high point in seven months from 3.05% in May, from 2.99% in April, mainly as a result of an increase in vegetable prices. Meanwhile, the industrial production index (IIP) surprisingly expanded by 3.4% in April, compared to 0.3% a month ago. Nomura expects total inflation to be 3.5% on average in the second half of the year, and sees an interest rate cut of up to 25 basis points in August at lower than target inflation and a likely growth distortion.

The CPI index (consumer price index) of 3.05% was largely in line with expectations. But food inflation was not surprising. On the other hand, core inflation decreased as expected to 4.1% from an upwardly revised 4.7% in April, "Nomura said in a report.

Another global investment bank, Barclays, said the revival in CPI inflation in May was caused by a rise in food prices and negative base effects. "Inflation seems to be largely in line with what RBI expects in its projections. We are lowering the CPI forecast for FY20 to 3.7% from 4.1% earlier. Another 25 fps interest rate cut in August is our basic forecast," the note said .

Meanwhile, Deutsche Bank said that although the April IIP data were encouraging, the overall growth momentum remained weak. The global bank also expects 25 bps interest rate cuts in the August or October policy meeting.

Last week, the Reserve Bank of India (RBI) lowered the policy rate for the third consecutive time by 25 basis points and changed its attitude to accommodative from neutral, indicating that there were more interest rate cuts in the store to revive the growth momentum.

"The growth impulses have been considerably weakened, as evidenced by a further widening of the output gap compared to the policy of April 2019. A sharp slowdown in investment activity together with a continued moderation in private consumption growth is a point of concern, "said the RBI monetary policy committee in its statement.

. (tagsToTranslate) barclays (t) Deutsche Bank (t) Index of industrial production (t) inflation (t) Nomura (t) Reserve Bank of India (RBI)

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