New Delhi: The country’s inflation scenario is expected to improve in the second-half of this financial year and the March reading is likely to be closer to the Reserve Bank’s 5 per cent target, says a report.
According to a research report by Kotak Institutional Equities, price pressures in the second half of 2016-17 fiscal should remain benign at around 4.6 per cent, partly helped by normal monsoons and positive base effect and the average for financial year 2016-17 is expected at around 4.8 per cent.
“While the near-term inflation outlook remains clouded due to seasonal factors, we expect inflation scenario to improve in the second half of this fiscal, with March reading closer to RBI’s 5 per cent estimate,” Kotak Institutional Equities said in a research note.
Retail inflation soared to 5.39 per cent in April on higher food prices, reversing a downward trend seen in recent months.
Regarding the Reserve Bank’s monetary policy stance, the report said that the Central bank is likely to maintain a status quo in its June meeting.
“We expect RBI to take cognizance of resurgence of inflationary pressures and likely to stand pat in June. RBI will also monitor the monsoon out-turn and consequent policy response in case of sub par monsoons,” it said.
According to the report, tepid demand conditions would create some room for further accommodation without necessarily hampering inflation objectives.
“Of course, the upside inflationary risks emanating from 7th central pay commission related wage hikes will need to be closely monitored. We pencil in another 25 bps of rate cut in second half of this calender year,” the report said.
Earlier in April, RBI reduced its policy rate by 0.25 per cent to 6.5 per cent — its lowest level in more than five years. While this was the first rate cut after a gap of six months, RBI has lowered its rate by 1.5 per cent cumulatively since January 2015.
However, the industry still wants further rate cuts from RBI to boost investment.