The high one-year-ahead growth and inflation forecasts from RBI have led some market participants to believe RBI will be hesitant in further easing, but the central bank may lower its forecast and cut rates, according to the report from HSBC Global Investment Research.
“If high frequency activity indicators stay weak in the coming months, the RBI is likely to lower its growth forecast. A 25 bps repo rate cut is expected in Q4, bringing the repo rate to 5.25 per cent,” the report said.
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The RBI maintained the policy rate at 5.50 per cent during its August meeting, following significant easing in the prior session.
Inflation came in at 1.6 per cent YoY; even though food prices rose gently, energy prices deflated and core inflation eased, leading to an eight year low print. The sequential momentum was subdued at 0.1 per cent. The average sequential momentum for the past six months has been flat.
CPI inflation is expected to average 3.2 per cent in FY26, driven by favourable base effects, well-stocked granaries, healthy kharif crop sowing, and weak commodity prices.
Vegetable prices, previously in disinflation for six months, picked up faster than expected, leading to today’s unexpected print, the report said.
Headline inflation, excluding vegetables, eased to 3.6 per cent YoU, down from 3.8 per cent previously.
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Food prices came out of deflation after six months, up 0.2 per cent. The heavyweight cereals, with a weight of 9.7 per cent, continued to contract for the second consecutive month.
“Falling prices of pulses, sugar, and fruits partially offset the rise in prices of edible oil, eggs, meat, fish, and vegetables. The annual print remained in the red, pulling down the headline number to an eight-year low,” the report added.
Energy index fell sharply, down 0.7 per cent on monthly-basis seasonally adjusted. Includes petrol, diesel, fuel, and light. This includes petrol, diesel, fuel and light. The sharp sequential fall can be explained by easing electricity and LPG prices on a sequential basis, said the report.
