Search ForexCrunch

Analysts at Nomura note that India’s CPI inflation was lower than expected in July, falling to 4.2% y-o-y from a downwardly revised 4.9% in June, led by food price (1.4% from 2.9%) and core (CPI ex-food and beverages, fuel) inflation (6.1% from 6.4%).

Key Quotes

“Base effects contributed to the drop, but sequential core momentum also moderated – we estimate that “super core” inflation rose 0.17% m-o-m, sa, in July versus a downwardly revised 0.21% in June (initial: 0.46%) and an average of 0.63% during Mar-May.”

“The downward revision of the previous month’s data, combined with weaker core inflation trends suggests that May-June inflation marked the peak.”

“We expect headline inflation to fall to ~4.4% y-o-y in Q3, from 4.8% in Q2, and an average of ~4.2% during Oct-Mar, both below the RBI’s projections. Because of our expectation of moderating growth in H2 and softer core pressures, we expect rates to be on hold through March 2019.”

“Soft core reading should boost the likelihood of a status quo for policy rates at the RBI’s policy meeting in October, and beyond. Persistent currency pressures are the main risk to this view.”