SBI research in its Ecowrap report has said that retail inflation may average at around 4% in the current fiscal year (FY20). It said surplus rainfall in August and September is likely to keep food and vegetable prices elevated going forward. In October, inflation based on the Consumer Price Index (CPI) spiked to a 16-month high of 4.62% on costlier food items. Besides, in 2019 five states- Rajasthan, Madhya Pradesh, Maharashtra, Gujarat, and Karnataka bore the brunt of excess rainfall and were affected by severe floods. The surplus rainfall during August and September seriously damaged many Kharif crops.
The report said ‘going forward, thus, food and vegetable prices could remain elevated and inflation prints in November still may be on a higher side due to the low base in 2018. We expect FY20 CPI to now average closer at 4%’. In the fourth bi-monthly monetary policy announced in October, RBI had projected at 3.5-3.7% for H2 of FY20 and 3.6% for the first quarter of FY21. The report further said even as food CPI will remain elevated, core CPI will go below 3% in this fiscal.
As per the report, the Reserve Bank of India (RBI) may cut repo rate in the upcoming December monetary policy meeting and may pause thereafter on concerns over inflation. It added that ‘We expect a December rate cut, but beyond December it will be a close decision (as inflation prints beyond October will remain elevated). Thus, it will be better if the rate cut is front loaded in December’.