The January consumer price index (CPI) based inflation is also likely to be above 7 percent, according to A Prasanna, chief economist, ICICI Securities Primary Dealership.
Rising food and vegetable prices took retail inflation to its highest level in over 5 years in December. The index rose sharply to hit 7.35 percent, as per the data released on Monday.
“Although onion prices have started coming down, we still think the rest of the food complex has also gone up and I don’t think there is any let-up in cereals and pulses. Therefore we expect one more number above 7 percent and then subsequently it could come off but still on an average, if you look at this quarter, the average could be anywhere between 6.5 percent and 7 percent, which is nearly 200 basis points (bps) about Reserve Bank of India’s (RBI) trajectory," said Prasanna in an interview with CNBC-TV18.
Into the next financial year, Prasanna expects retail inflation to come down as vegetable prices slow down. However, he added that it was unlikely to see inflation reading of 4 percent or below before the second half of FY21.
Talking about the upcoming RBI policy, Prasanna said, “As of now we are still retaining an expectation of residual cut of 25 bps but we do think the probability has definitely come down. So what we would do is we would watch out for growth numbers and if growth does start picking up durably into the next financial year, then we would remove that expectation of rate cut.”
Amandeep Chopra, group president and head of fixed income, UTI Mutual Fund, however, said, "We never expected the rate cut. In fact, after the last policy, our view was broadly around an extended pause by RBI. Like I mentioned earlier and I still reiterate, the bar for RBI to cut rates to the next two-three policies is very high. Given the inverted V-shaped inflation trajectory, there will be some bit of optimism or some expectation around RBI likely to cut rates but in our view, it is very unlikely.”