India CPI Eases More Than Estimated Before Rajan Rate Review

  • Consumer prices rise 5.18% versus 5.52% survey estimate
  • Central bank scheduled to review interest rates on April 5

India’s inflation eased more than estimated, boosting speculation that central bank Governor Raghuram Rajan will lower interest rates after the government stuck with a plan to narrow the budget deficit.

Consumer prices rose 5.18 percent in February from a year earlier after a 5.69 percent increase in January, the Statistics Ministry said in a statement on Monday. The median of 36 estimates in a Bloomberg survey of economists had predicted a 5.52 percent gain. Wholesale prices fell 0.91 percent compared with a 0.19 percent projected decline.

Rajan on Saturday said the central bank was "comforted" by Prime Minister Narendra Modi’s plan to shrink the budget deficit to 3.5 percent of GDP while telling reporters to "wait and see" how that feeds into monetary policy. He’s scheduled to review policy on April 5 as he looks to keep CPI within 5 percent by March 2017.

The easing "is largely due to food," said Shailesh Kejariwal, an economist at B&K Securities India Pvt. "It clearly opens the space for another 25 basis point cut," he said, adding that he didn’t rule out a reduction before the scheduled review.

  • Consumer food-price gains eased to 5.3 percent in February from a year earlier after a 6.85 percent increase in January
  • Cost of fruits dipped 0.7 percent, while prices of pulses rose about 38 percent
  • The rupee extended gains in the offshore market after the data; the one-month non-deliverable forward strengthened 0.1 percent to 67.49 a dollar

The currency had closed 0.1 percent weaker in the local market before the data was published. Benchmark stocks rose 0.4 percent and the yield on the 10-year sovereign bond fell to 7.6 percent from 7.63 percent.

Meeting India’s longer term inflation targets may be challenging as back-to-back years of drought erode harvests and pressure Modi to compensate farmers. He vowed on Saturday to refrain from competitive currency devaluation and cash handouts in a world of negative interest rates. While gross domestic product data show that India’s economy is among the world’s fastest growing, underlying indicators such as factory output and exports signal weakness.

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