Anticipates RBI to keep interest rates at current levels for a prolonged period to achieve 6% CPI inflation by January 2016
Nomura Financial Advisory Services in a research report have indicated that the CPI based inflation would ease to 7% in September 2014 from 7.8% in August 2014. Nomura indicates data from Ministry of Consumer Affairs data is showing sharp 8% month-on-month dip in vegetable prices in September, as a reason for expectation of decline in CPI inflation to 7% in September 2014.Sonal Varma, India Economists, Nomura, said "This significant fall in addition to favourable base effect should help lower CPI inflation to nearly 7% y-o-y in September from 7.8% in August".
"The base effects over the next two months remain significant, and if the downtrend in vegetable prices continues, CPI inflation will likely drop significantly over the next three readings before rising back up in Q1 2015 to the 7.0-7.5% range", Sonal Varma added.
However, the Nomura expects the Reserve Bank of India to keep interest rates at current levels for a prolonged period to achieve 6% CPI inflation by January 2016. Nomura feels positive real policy rates, lower minimum support prices and a moderation in rural wages suggest that a gradual disinflation should continue, while the inflation path will be bumpy.
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