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CPI inflation is positive surprise; could range 5.5-5.7% in Dec, says SBI’s Soumya Kanti Ghosh

Updated : December 15, 2020 10:13:06 IST

CPI Inflation was a positive surprise, 40-50bps lower than market expectations, said SBI’s Soumya Kanti Ghosh on Tuesday. He also said that there is no space for rate cuts and on average the inflation will go below 5 percent. Ghosh also added that the issue is the liquidity in the banking system and how can it be phased out gradually although the Reserve Bank of India likely will keep liquidity in the system.

Retail inflation declined to 6.93 percent in November on softer food prices, though it remained above the comfort level of the Reserve Bank of India (RBI). Retail inflation based on the Consumer Price Index (CPI) stood at 7.61 percent in October.

According to the CPI data released by the government on Monday, inflation in the food basket was 9.43 percent in November, down from 11 percent in the previous month.

Speaking in an interview to CNBC-TV18, Soumya Kanti Ghosh, Group Chief Economic Advisor at State Bank of India said, “Consumer Price Index (CPI) inflation is a positive surprise and it’s a good 40-50 bps lower than the market expectations.”

December CPI could range up to 5.7 percent, Ghosh said.

“We expect that the next month’s CPI number could be in the range of 5.5-5.7 percent and if that’s the case then it will undershoot RBI inflation trajectory, but the concern remains on the core inflation which is unlikely to go down in a hurry.”

Bond market will reasonably cheer the turnaround, said R Sivakumar, Head-Fixed Income, at Axis Mutual Fund. “Bond market will be reasonably cheered by the fact that the trajectory is turning around. We have been anticipating this, the RBI got a bit surprise by elevated prints in the last month or so but finally it does seem that it is following the expected trajectory.”

According to him, the cues for the bond market will now turn by the budget than by inflation prints.

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