CPI at 6.58% due to softer food inflation; factory production may dip further on global trade disruptions.
Factory output growth improved in January after a mild decline in December while retail inflation eased in February, offering the Reserve Bank of India (RBI) the option of an immediate rate cut to counter the disruption caused by the Covid-19 pandemic.
Data released by the statistics office on Thursday showed industrial output grew 2% in January against an upwardly revised 0.07% rise in December.
The simultaneously released Consumer Price Index (CPI) showed retail inflation slowing to 6.58% in February from 7.59% in January due to softer food inflation. “With domestic and global growth expected to face downside risks from the spread of Covid-19 and deflationary forces emerging, we see room for up to 50 bps of rate cut by the MPC (monetary policy committee), with any further easing contingent on the evolving growth environment,” said Upasna Bhardwaj, economist at Kotak Mahindra Bank.
The next policy review is scheduled for the first week of April.
The central bank said on Thursday it was prepared to take all necessary measures, raising the prospect of an early monetary review aimed at cutting rates, said experts.
The US Federal Reserve and other central banks have already announced measures to support national economies amid forecasts that global growth could slow to below 2% from 2.9% in 2019. OECD has lowered the global growth scenario to 1.5% from 3% in a worst-case scenario if the spread of the virus is not contained.
The US Fed’s rate cut has increased the chances of a similar cut in India, said Indranil Pan, chief economist at IDFC First Bank. “A 35-40 basis point cut may not boost credit growth immediately but will arrest the negativity that has sunk in because of the coronavirus,” he said. A basis point is 0.01percentage point.
Food inflation fell to 10.81% from 13.63% in January and that in vegetables was 31.61% compared with 50.19% in January. Among protein-rich items, meat and fish inflation was 10.20% during the month, while that for eggs was 7.28%.
