Retail inflation hits 3-month low, but will Rajan cut rates?

  • HT Correspondent, Hindustan Times, New Delhi
  • Updated: Apr 14, 2015 00:19 IST

India’s retail inflation fell to a three-month low of 5.17% in March from 5.37% in the previous month, giving more room to the Reserve Bank of India (RBI) to cut interest rates.

Food inflation, a measure of how costly the platter has become over a 12-month period, rose at a slower 6.14% in March from 6.88% in the previous month.

The RBI, which kept key rates unchanged in its monetary policy review last week, had indicated it will closely observe the trends in food inflation, particularly in the context of severe damage to crops caused by an unseasonal spell of hailstorms across several states, which has devastated ripening winter-sown crops and delayed harvests.

“While the extent of crop damage remains somewhat unclear, concerns related to the impact of unseasonal rains on food prices are yet to completely dissipate in our view,” said Aditi Nayar, senior economist at credit rating and research firm ICRA.

RBI governor Raghuram Rajan had told banks in no uncertain terms that it was about time they start reducing interest rates to pass on two previous cuts to customers.

Many banks including State Bank of India (SBI), have announced cuts in their lending rates, rekindling hopes of millions of home loan borrowers that their EMIs will start falling.

India’s retail inflation rate acts as the RBI’s main guide on interest rate-related decisions and is now well below the RBI’s tolerable threshold limit of 6%.

In February, the government and the RBI announced that they have agreed to adopt a monetary policy framework, which will make taming inflation the primary priority of the central bank’s policy decisions.

Under the new system, billed as the biggest monetary reform measure in a generation, the RBI has set a new retail inflation target of below 6% by January 2016 and 4% by March 2017.

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