India's consumer price index (CPI) inflation, or retail inflation, eased in March to 5.66 percent, coming at the lowest since December 2021.
Retail inflation cooled to below the Reserve Bank of India’s (RBI) upper tolerance level of 6 percent for the first time in three months as in January and February this year, retail inflation prints came at 6.52 percent and 6.44 percent, respectively.
The best part of March inflation was that it showed a decline in core inflation which is the focus of the central bank.
Many analysts believe the RBI can remain on pause mode in the June policy meeting also. MintGenie collated the views of analysts, rating agencies and broking firms on the March inflation print and what RBI can do going forward. Take a look:
Brokerage firm: Motilal Oswal Financial Services
CPI inflation came in at a 15-month low in March 2023. The deceleration in inflation was broad-based. Going forward, we expect headline inflation to ease to nearly 5 percent in Apr’23 and fall further in subsequent months.
IIP also maintained traction in Feb’23. Against this backdrop, we expect the RBI to maintain the status quo in the Jun’23 policy.
Brokerage firm: Kotak Securities
March headline inflation, expectedly, moderated to 5.66 percent after two consecutive above-6 percent readings. Core inflation surprised on the downside. Though favorable base effects are expected to keep 1QFY24 inflation comfortably around 5.1 percent, risks are skewed to the upside.
We estimate the FY24E average CPI inflation at 5.4 percent and maintain our view of a prolonged pause by the MPC in FY2024.
Agency: CARE Ratings
With March data, the CPI inflation averaged 6.2 percent in Q4 FY23 and 6.7 percent for the full fiscal year. Food inflation has remained elevated throughout the year but there has been a shift in the underlying driving factor.
In the coming months, a favourable base and some waning of pent-up demand will help in pulling headline CPI prints down. A stable outlook for the rupee and lower commodity prices will also work in favour of domestic inflation.
Having said that, the impact of unseasonal rains in March on Rabi crops, especially wheat, could pose an upside risk to food inflation. The risk will get compounded if the monsoon turns unfavourable.
Additionally, any major rebound in global crude oil prices due to production cuts in major producing countries poses a threat to domestic inflation.
We maintain our FY24 CPI inflation forecast at 5.1 percent with Q1 print at 4.8 percent. Some pick-up in inflation can be witnessed in the second half of the fiscal but it will likely stay within the RBI’s target range.
The core inflation will also ease gradually as the impact of past rate hikes plays out.
With CPI inflation expected to moderate in the coming months and an improvement in the household’s inflationary expectation, we can expect a status quo on RBI’s policy rate hike in FY24.
With average CPI inflation expected around 5 percent in FY24 (higher than RBI’s target of 4 percent) and GDP growth around 6 percent, we do not expect RBI to start cutting the rates in FY24.
Expert: Madhavi Arora, Lead Economist at Emkay Global Financial Services
Inflation is likely to ease in FY24, averaging at 5.2 percent, with core inflation undershooting the headline inflation.
Factors like better rabi output and easing cost conditions would be partly countered by risks of weather vagaries, milk inflation, higher global financial market volatility and near-term sticky core services inflation.
That said, the RBI is now giving more weightage to the fluid global situation and policy repricing in the West, as against their past guidance, which was anchored more on the domestic inflation dynamics.
We believe the pause may be for good, especially as the ex-ante real rates are looking to be at around 1.3 percent – keeping our one-year forward inflation forecast as the anchor – thus giving comfort and flexibility on the RBI’s supposed stance and actions ahead.
Expert: V K Vijayakumar, Chief Investment Strategist at Geojit FInancial Services
The MPC has received an endorsement of their decision to pause the rate hike with the March CPI inflation slowing down to 5.66 percent from 6.44 percent in February.
The RBI’s projection of 5.2 percent CPI inflation for FY24 appears to be on track. Core inflation for March, too, has declined to 5.8 percent from 6.1 percent in February. This is good news from the market perspective. Bulls can take the rally forward on the assumption that we are at the peak of this rate-hiking cycle.
Expert: Sunil Sinha, Principal Economist, India Ratings and Research (Ind-Ra)
The decline in March 2023 inflation was on expected lines and was due to the strong base effect, which will be even stronger in April 2023 (April 2022: 7.8 percent).
The good part is the reversal of the increasing trend of nine months of rising cereals and product inflation.
It appears that government interventions have helped in arresting the increasing inflation of cereals and products. The impact of abnormal heat conditions in March and unseasonal rains did not have any impact on wheat pieces. Progress of the 2023 monsoon will have some impact on 2023 cereal and product inflation. Core inflation has cooled off to an 18-month low.
Inflation in the near term is likely to be lower than 6 percent mainly due to the base effect. Ind-Ra expects headline retail to come in at 5 percent and core at 5.2 percent in April 2023. This will give some solace to monetary authorities in their fight against inflation.
Ind-Ra, therefore, believes that the growth-inflation dynamics at the current juncture do not warrant further rate hikes in the near term. However, RBI will continue to monitor inflationary trends and should a situation arise, may take necessary action.
Expert: Umesh Kumar Mehta, CIO, SAMCO MF
India witnessed its lowest retail inflation print in the last 15 months in March which was just above RBI’s tolerance level but has now fallen within the tolerance range. This certainly opens the door for the awaited pivot after the current pause. The trend in CPI print should cheer up the already positive D-Street post the surprising pause in the interest rates.
Disclaimer: The views and recommendations given in this article are those of individual analysts, rating agencies and broking firms. These do not represent the views of MintGenie.
