India CPI Inflation at 5 Year Low..

India CPI Inflation at 5 Year Low..

Central Statistics Office (CSO) released Consumer Price Index (CPI) Inflation (retail inflation) data. CPI has fallen to 5 years low of 3.17%. The moderation in retail inflation is generally a sign of an of interest rate cut. 

However, in the recently concluded Monetary Policy meeting, the Reserve Bank of India (RBI) kept interest rates unchanged.
In fact, it indicated the current interest rates are at the bottom of the interest rate cycle. 

So the question is why no interest rate cut, despite the tepid retail Inflation? 

Interestingly, the core inflation (non-food, non-fuel inflation) has risen sharply in the January 2017 at 5.1% against 4.9% in December 2016. However, this was offset by the subdued food inflation. 

Food inflation accelerated by mere 0.53%. The benign food inflation was due to subdued vegetable prices which were adversely impacted by the demonetisation. 

Given the low base and normalization in the food prices going ahead, the retail inflation can be expected to inch up. 

We believe, given the strong growth in the core inflation and the normalization of the food prices, the central bank will be wary to go in for any further interest rate cuts.

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