Mumbai, Nov 14: The interest rate cut by the Reserve Bank of India (RBI) is unlikely in February due to the persistent inflation, SBI Research stated in its latest report, adding that a slight easing in inflation is expected starting in January.
The report adds that inflation is likely to average around 4.8 percent to 4.9 percent for financial year 2025, higher than the RBI target of 4.5 percent. It adds that the ease in inflation from January will be supported by base effects rather than a significant cooling of underlying price pressures.
“Inflation is only likely to dip from January onwards, but this will be driven by base effects. We are now less hopeful of a February rate cut. We believe the first rate cut is now effectively pushed back beyond Feb’25,” the report adds.
This is mainly due to the higher food prices, and the rural basket of food items weight (54.2 percent) is higher than the urban weights (36.3 percent). It further expects a moderation in vegetable prices in the month of November.
“The retail price data till November 11 indicate a decline in vegetable prices. CPI headline inflation has peaked in Oct’24, but November and December numbers could still be higher than 5 percent,” the report adds.
With the currency market experiencing volatility, the report adds that the higher inflation could provide the RBI with an argument to avoid signaling a rate-easing cycle prematurely. “With the currency market being subject to turbulence, we believe a higher inflation number could act as a blessing in disguise for RBI not to signal a rate-easing cycle,” the report adds.