Tuesday 4 October 2016

Inflation below RBI's 2017 target, room for rate cut, says HSBC

The inflation is likely to remain below the RBI's early 2017 target of five per cent for the next 12 months, according to the latest HSBC report. According to the global financial services major, the declining trend in inflation is expected to continue as new crop streams into the market and CPI inflation could fall to under 4.5 per cent in January-March 2017. However, the vegetable prices are
expected to completely reverse their summer ascent and higher pulse production may reduce inflation by another 40 bps.

"RBI has two objectives to reach its five per cent inflation target in early 2017 and keep real rates at the 1.5-2 per cent range. Marrying the two would open up space for easing by 50 bps," states the report.

However, this is the first review under the new RBI Governor Urjit Patel, who has assumed charge effective September 4 after the end of his predecessor Raghuram Rajan's three-year tenure.

"This is because, by December, two new inflation prints, which are expected to be well below five percent, will be available," said the report.

"Our estimates point to a balance of payments (BoP) surplus of $25 billion in 2016-17, and given the possibility of currency leakage to the tune of Rs 2.5 trillion this year, we expect bond purchases to continue at a rapid clip, given that RBI wants to move closer to its aim of closing the rupee deficit," it added.

The second half of 2017 may see some policy-related upside risks to inflation such as the second round effect of the government wage hikes and a temporary hardening of inflation if the GST rates are over 18 per cent.

Inflation below RBI's 2017 target, room for rate cut, says HSBC

No comments:

Post a Comment