 "Retail inflation to soften further, October CPI seen at 4.1%: Report")
Retail inflation is expected to soften to 4.1% in October and ease further to sub-4% level by November-December, largely helped by a favourable base effect, says a Citigroup report.
According to the global financial services major, the Consumer Price Index (CPI) based inflation is likely to slide further to sub-4% print by November-December before firming towards 4.5% by March 2017.
"October CPI inflation could decline to 4.1% from 4.3% last month as the impact from a favorable base effect more than offsets the sequential increase in CPI index," Citigroup said in a note.
"We continue to see roughly 50 bps downside to the RBI's (Reserve Bank of India) interim CPI target of 5% by March 2017," it added.
The report noted that the sequential increase in food index in October was largely led by higher prices for gram pulse, sugar and cooking oil, which were possibly due to increased festival demand for these key ingredients.
Outside food, fuel inflation could firm up in October with a rise in petrol, diesel and kerosene prices, while core inflation trends are likely to remain stable at sub-5% levels, the report said.
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On the RBI's policy stance, the report said that subdued inflationary pressure in the near-term could open room for an accommodative policy, but the December FOMC (Federal Open Market Committee) meet might weight on the Central Bank's policy stance.
"The subdued trends in CPI-based inflation in the near term and diminishing risk of a GST (goods and services tax) related jump in CPI-based inflation over medium term could tip the balance towards RBI frontloading its rate cut in December policy. However, we recognize the RBI policy comes just a week ahead of the December FOMC meet, which introduces some risk to our call," Citigroup said.
Monetary Policy Committee (MPC), which has three members nominated by the government and the rest from the RBI, lowered repo rate to 6.25% from 6.50% at the end of 2-day deliberations on October 4.
The next meeting of the MPC is scheduled on December 6 and 7.