Mumbai: Inflation in India is expected to moderate in the second half of the ongoing fiscal, according to Standard Chartered. "We expect India's CPI inflation to moderate over the course of year ending March 2017, slowing to 5 per cent y-o-y in the second half from 5.7 per cent in first half," it said in a note.
"Unless oil prices surprise on the downside or food prices fall much faster than we expect, we do not expect CPI to undershoot the RBI's 5 per cent CPI inflation target for January 2017," it added.
Expecting the RBI to hit the pause button at the policy review tomorrow, the firm said it is also cautious about further rate cuts. Even the forecasts are predicting a normal monsoon, it is expecting headline inflation at 5.3 per cent for the 2016-17, Standard Chartered said, adding that the rains will lead to an ebbing price rise only in the second half. The key factor to watch out for is the implementation of the Seventh Pay Commission, it said.
If the rental allowances go up as recommended the headline inflation can go up to 6 per cent, it added. "Such a rise is unlikely to raise concerns, as the RBI has indicated that it will look beyond this technical boost to inflation," it said.
The headline inflation rose to 5.4 per cent in April, dashing hopes of a rate cut by the RBI. The RBI is targeting to get it down to 5 per cent by early 2017. The only factors which can positively impact the inflation condition are a dip in oil prices and food prices correcting at a faster clip than expected, Standard Chartered said.
