India's retail inflation
eased significantly last month after Prime Minister Narendra Modi's shocking
demonetization drive dented the consumer spending, fuelling hopes of an
interest rate cut by the Reserve Bank of India at its next policy review in
February 2017.
According to the data released by statistics
office, consumer inflation, the benchmark price gauge of the RBI eased to its
lowest level in two years to 3.63 per cent in November from 4.20 per cent in
October. It was 5.41 per cent during the corresponding period last year.
The fall in in the inflation was primarily due
to sharp slowdown in food prices which registered its fourth consecutive month
of decline, coming in at 2.11 per cent in November from 3.32 per cent in
October.
In addition, Inflation rate
based on wholesale price index (WPI) also decelerated for the third consecutive
month to 3.15 per cent in November from 3.39 per cent a month ago, as a squeeze
in cash availability impacted prices of perishable commodities.
Prime Minister Narendra Modi's shocking move to
cancel 500-rupee and 1,000-rupee banknotes, which accounts for 86 per cent of
the cash circulating in Asia's third-largest economy, has disrupted daily life,
discouraging consumer demand. The slow pace of replacing the old currency with
the new Rs 500 and Rs 2,000 banknotes is expected to have led to the demand
compression, which has eventually hit the small businesses.
November's reading is way
below the Reserve Bank of India's (RBI) 5 per cent inflation target for March
2017 as well as the medium-term target of 4 per cent. The monetary policy
committee headed by RBI Governor Urjit Patel had earlier this month held
interest rates steady and said demonetisation of high value currency notes
could lower prices of perishables and reduce CPI inflation by 10-15 basis
points by December.
With this sharp slowdown in inflation, there is
room for further rate cuts by RBI in the next policy meeting. However, before
penciling in RBI's next move, the economists are eyeing the advance estimates
of GDP and the December CPI numbers.
Latin Manharlal Group
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