Anatomy of a cut

Will falling retail inflation force RBI hand? 

Published 4 years ago on Jul 13, 2017 1 minute Read
Soumik Kar

Amid growing farmer unrest in the country over falling food prices, retail or consumer inflation in the country has dropped to a five-year low of 1.54% in June – the lowest since January 2012. The drop, driven by decline in vegetable prices, follows the 2.18% decline in May. Not surprising then that the country’s Chief Economic Advisor Arvind Subramanian is nudging the central bank to further slash rates. In its June policy review, the Reserve Bank of India had lowered its headline inflation forecast to a range of 2-3.5% for the first half of the current fiscal and 3.5-4.5% for the second half. The central bank has been playing it by the ear as it wants to take stock of the mid-year shift to GST on prices, though food products are exempt under the new indirect taxation system. However, now analysts are expecting the RBI to cut its key policy rate by 25 basis points in its review meet on August 2 given that industrial output growth too has slowed to 1.7%. The jury is still out whether Mint Street will indeed oblige the mandarins at North Block.