Views on RBI monetary policy by Ms. Anagha Deodhar – Economist, ICICI Securities

Jaipur,4th April 2019: “The MPC lowered inflation trajectory by 30-40bps in the latest policy review due to low food, fuel and core inflation. It now expects Q4FY19 inflation to come in at 2.4% down from 2.8% in the Feb ’19 review. However, we believe the committee is underestimating inflationary risks. Food inflation is likely to turn positive in Mar ’19 after five consecutive months of negative print. Given the high weightage of food in CPI basket, rising food prices are likely to push headline inflation to ~2.89% in Mar ’19, taking the Q4 average to 2.6% which is 20bps higher than MPC’s estimate. We also think H1 and H2FY20 inflation prints are likely to be 30-50bps higher than MPC’s trajectory.

Retaining the stance of monetary policy at ‘neutral’ was in line with our expectation as it gives flexibility to the committee to move in either direction in the future. We expect one more rate cut in FY19, possibly in the next policy itself.”