Nomura today said with core wholesale price index (WPI) inflation moderating to 7.18% in December from 7.24% in November, it expects Reserve Bank of India (RBI) to cut the repo rate by 25 basis points in the upcoming monetary policy review on January 29.
However, we do not see this as the start of a long rate cut cycle and expect a total of only 50 basis points cut in the first half of 2013 as we expect inflationary pressures to re-emerge in the second half of 2013 said Sonal Verma, economist at Nomura in a note.
Inflation numbers were below expectations as higher food inflation was offset by lower core inflation,Nomura further said. Food inflation rose to 10.4% year-on-year from 9% as the seasonal decline in food prices was less than expected.
Underlying inflation expectations remain sticky and is indicative of weak demand-side pressures, it said.