The Reserve Bank of India is expected to continue to focus on containing retail inflation which still remains on the higher side. Hence, any rate cut is unlikely in the next monetary policy review meet on 30th September'14: CARE Ratings.
Headline inflation eased for the second consecutive month in July'14 registering 5.2% growth compared with 5.4% recorded in the previous month and 5.9% in the corresponding period of the previous fiscal year. The moderation in inflation is largely attributed to the moderation in fuel prices. However, this decline in inflation needs to be viewed with caution in the ensuing months as inflationary pressures continue to emerge from rising food prices owing to subnormal monsoons in the current the year. Hence, despite decline in overall WPI inflation, RBI is expected to continue its focus on containing CPI inflation which remains on the higher side, before taking any further actions on key interest rates.
Outlook
Easing of inflation for the second consecutive month is indicative of inflation moving on to a downward trajectory. However, it may be noted that the deficient monsoons though recovering could potentially push up the food prices. In addition to this, fluctuations in the prices of oil on account of geo- political concerns in the oil producing regions continue to pose an upward risk to inflation. Going ahead, the Reserve Bank of India is expected to continue to focus on containing retail inflation which still remains on the higher side. Hence, any rate cut is unlikely in the next monetary policy review meet on 30th September'14.
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