New Delhi: Retail inflation at 3.7 per cent in August is much lower than RBI's guided path target by January and there is a room for at least 25 basis points repo rate cut during the policy meet later this month, India Ratings said on Tuesday.
The ratings and research firm said that despite the risk of CPI inflation coming on higher during forthcoming months due to waning base effect, various mitigating factors are in play to keep inflation in the comfort zone of RBI.
It said there is a sharp fall in crude prices since June and it is likely to remain soft in near-term, besides a higher acreage under kharif crops, particularly, pulses and oilseeds and proactive steps taken by the government to contain supply shocks to food prices will help contain price rise.
"Ind-Ra thus believes that irrespective of whether US Fed hikes rate on 17 September or not, there is a room for at least 25 bps (25 basis points or 0.25 per cent) repo rate cut during the fourth bimonthly RBI policy review on 29 September 2015," it said in a note.
On Wholesale Price Index based inflation, it said with the 10th consecutive decline in August print, it is expected to remain deflationary.
"Although the base effect advantage both for WPI and CPI will wane in the coming months, Ind-Ra expects the WPI and retail inflation to remain in deflationary and soft mode, respectively, in the near term," it said.
But it added that despite an overall food deflation, there is no respite from high prices of pulses and onion.
However, there is some good news on this front. A higher acreage under pulses this fiscal would help in improving the pulses supply and contain prices of pulses post kharif harvest, Ind-Ra added.
To meet the domestic demand, India imported 4.58 million tonnes (MT) of pulses in FY15 (FY14: 3.17 MT).
"But, weakening of rupee lately will make the import of pulses costlier this fiscal.
"Among the protein-rich items, however, low inflation in milk and egg/meat is providing some solace to the people," said the ratings firm.
