India: Rate cut looming in April? – Standard Chartered

Analysts at Standard Chartered had lowered their CPI inflation projection of India for FY20 (ends March 2020) to 4.0% from 4.4%, while FY19 CPI is tracking at 3.4%.

Key Quotes

“Despite the upside surprise in February, CPI inflation has stayed benign; average food CPI inflation has averaged a meagre 0.02% m/m so far in FY19, less than one-tenth the levels in FY17 and FY18. This has helped to offset the rise in core inflation on higher oil prices, rising housing inflation and adverse base effects.”

“We see inflation remaining below 4% until December, similar to the Monetary Policy Committee’s (MPC’s) forecast.”

“We maintain our call of a 25bps rate cut in April, and do not rule out the possibility of another cut later in FY20. However, we still do not expect a deep easing cycle unless global or domestic growth shocks further reduce price pressures.”

“In our view, the following risks to the inflation trajectory need to be monitored closely: (1) Oil prices – if the Indian crude basket (ICB) price stays subdued in the USD 60‑65/bbl range in FY20, versus our assumption of USD 70/bbl, this will reduce CPI inflation by c.15bps relative to our forecast. (2) Food prices – a sharper-than-expected reversal is a key risk given food’s c.46% weight in the CPI basket; the monsoon needs to be watched closely as El Niño risks are rising. (3) Election-related spending and farm support-scheme implementation, which could lead to a higher-than-expected rise in inflation. (4) Domestic and global growth – a slower-than-expected recovery would put downward pressure on core inflation.”