FxWirePro Poll: India's next week inflation data likely to remain subdued, to pressurize RBI for rate cut in February

India’s inflation data, due to be released next week is expected to have remained subdued during the month of November, exerting deeper pressure on the Reserve Bank of India (RBI) to undertake easing policy in the next 2-day bi-monthly monetary policy scheduled to be held on February 7.

The country’s inflation is anticipated to have eased in November, after Prime Minister Narendra Modi announced the ban of INR500 and INR1000, with effect from November 8 midnight. This masterstroke brought in a pool of electronic transactions that deprived many of hand-to-hand cash exchanges, thus leaving the citizens in a wide array of lower spends overall.

The lower spread of cash transactions, coupled with a maximum limit on ATM withdrawals has pressurized the prices of many retail commodities, including luxuries and real estate prices as well. According to a poll of 10 economists by FxWirePro, India’s consumer inflation is likely to have declined to 3.92 percent, from a year earlier period, compared to 4.20 the previous month. However, it would remain below the RBI’s targeted 4.0 percent.

"The RBI is expected to slash its benchmark repo rate by 25 basis points to 6.00 percent, following decline in inflation expectations," said Chintan Master, Director, Finrex in an exclusive interview with FxWirePro.

The 2017-18 Union Budget, expected to be unveiled by February 1, 2017 is likely to incorporate a slash in the income tax bracket as well, allowing consumers to combat the negative effects of demonetization. The policy implementation is expected to boost consumer spending, allowing door for some recovery in inflation expectations.

Master, meanwhile, added that a 50bps rate cut seems uncertain in the February policy meeting, since inflation is generally low during winter season.