India’s CPI Eases More Than Estimated Before Patel Reviews Rates

  • Inflation rate rises 5.05% in August versus 5.2% survey est.
  • Governor Patel scheduled to review interest rates on Oct. 4

Vendors and farmers are surrounded by baskets at the Bara Bazar market in Shillong, India.

Photographer: Sanjit Das/Bloomberg

India’s inflation eased more than estimated, reviving calls for an interest-rate cut as new central bank Governor Urjit Patel prepares for his first review next month.

Key Points

  • Consumer prices rose 5.05 percent in August from a year earlier, the Statistics Ministry said in a statement in New Delhi on Monday
  • That’s slower than the 5.2 percent median estimate in a Bloomberg survey of 35 economists and is a plunge from the previous month’s 6.07 percent rate 
  • Industrial production fell 2.4 percent in July, compared with a 1.4 percent increase forecast in a separate survey

Big Picture

A softening in some of Asia’s strongest price pressures would allow Patel room to retain his predecessor Raghuram Rajan’s"accommodative" monetary stance to stimulate investment. At his last review Aug. 9, Rajan left the benchmark repurchase rate unchanged at a five-year low of 6.5 percent and flagged upward risks to the Reserve Bank’s CPI target of 5 percent by March 2017. Prime Minister Narendra Modi’s government is also expected to announce its candidates on a new six-member rate-setting panel, the final step in the biggest overhaul of the 81-year-old institution.

Economist Takeaways

  • "Inflation will continue to soften going forward due to lower food prices," said Sujan Hajra, a Mumbai-based economist at Anand Rathi Financial Services Ltd. "There is certainly room for a 25-basis point rate cut and I see it coming between October and December. Meanwhile, the central bank is improving the liquidity situation which in itself is important to soften yields."

The Details

  • The consumer food price index rose 5.91 percent in August, slowing from the 8.35 percent pace the previous month
  • The easing was led by a smaller increase in vegetable costs, which rose 1 percent in August from a year earlier compared with 14 percent in July; pulses increased 22 percent versus 27.5 percent
  • Housing rose 5.3 percent, education 5.2 percent and personal care jumped 8.3 percent
  • Patel is scheduled to review policy on Oct. 4
  • The rupee gained in the offshore market after the data, with the one-month non-deliverable forward rising to 67.19 a dollar as of 1:30 p.m. in London from 6.23; local markets had shut earlier and will be closed Tuesday for a public holiday
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