By Manoj Kumar
NEW DELHI, March 14 (Reuters) - India's retail inflation eased in February, helped by smaller rises in food prices after edging up for six straight months, raising expectations of a central bank rate cut next month.
Analysts said Raghuram Rajan, Governor of the Reserve Bank of India (RBI), could be encouraged to cut policy rates. Finance Minister Arun Jaitley has also stuck to a fiscal deficit target of 3.5 percent of GDP for next fiscal year in his third budget last month.
"For now, with inflation readings well below the central bank's target, and the government delivering on its fiscal targets, the case for a 25bp cut at the April meeting remains on the table," said Radhika Rao, an economist at DBS Bank in Singapore.
Jaitley hiked annual state spending for the farm sector by 44 percent for the next fiscal year to over $5 billion and eased import curbs to restrain price rises.
Annual consumer prices, which the RBI closely tracks to set its interest rate policy, eased to 5.18 percent in February from a year ago, data released by Ministry of Statistics on Monday showed.
Economists surveyed by Reuters had forecast retail inflation to edge down to 5.60 percent in February compared with 5.69 percent in January.
The wholesale price index fell for a 16th straight month in February, declining an annual 0.91 percent, driven down by tumbling oil prices, data released by Ministry of Commerce and Industry earlier showed.
The central bank aims to bring retail inflation down to 5 percent by March 2017 and 4 percent a year later. New Delhi expects depressed global commodity prices and subdued domestic demand to help achieve the target, opening the window for further monetary easing.
Retail food inflation in February eased to 5.30 percent, compared with 6.85 percent recorded the previous month.
However, Rajan remains worried about services inflation that has been sticky since September 2015, keeping household inflation expectations elevated and pushing up urban wages.
The central bank's monetary stance should remain tight to ensure a durable reduction in inflation, supported by measures to boost food supply, the International Monetary Fund said earlier this month.
Rising prices are squeezing the budget of Sanjay Kumar, a 38-year-old worker in New Delhi, who earns $137 a month.
"My biggest worry is rising household expenses and education costs for my three daughters," said Kumar, who works as a housekeeper in a private company.
Reactions to easing of India's Feb consumer inflation
MUMBAI (Reuters) - India's annual consumer price inflation eased to a lower-than-expected 5.18 percent in February from a year ago, helped by a fall in food prices, government data showed on Monday.
COMMENTARY
DHANANJAY SINHA, HEAD OF RESEARCH, ECONOMIST & STRATEGIST, EMKAY GLOBAL FINANCIAL SERVICES, MUMBAI
"The reading for inflation and IIP (industrial output) appears to have created some headroom (for a rate cut)."
"I don't expect a rate cut before the April policy because a lot depends on the Federal Reserve meeting on March 15-16, as that will be a very critical event for the market".
INDRANIL PAN, GROUP ECONOMIST, IDFC BANK LTD, MUMBAI
"The numbers are relatively better than market expectations, mostly due to a drop in food prices including vegetables and pulses.
"While this probably provides the scope to RBI for, at last, a 25 basis points drop in rates on April 5, going forward evaluation of inflation will be more with respect to how core inflation behaves.
"We expect inflation to remain relatively sticky at 5.2-5.4 percent with monsoon and core inflation likely to play a critical role going forward."
RADHIKA RAO, ECONOMIST, DBS BANK, SINGAPORE
"Softer-than-expected headline inflation was largely led by disinflation in the food component, much like the WPI reading earlier today.
"Further disinflation from these levels will be a challenge amidst expectations of a pick-up in aggregate demand conditions, partial implementation of pay commission proposals and bottoming-out in oil prices.
"For now, with inflation readings well-below the central bank's target, and the government delivering on its fiscal targets, the case for a 25bp cut at the April meeting remains on the table."
- PRASANNA, ECONOMIST, ICICI SECURITIES PRIMARY DEALERSHIP, MUMBAI
"The CPI number was a positive surprise mainly because of food prices. Vegetable prices have come down sharper than anticipated. However core CPI has risen to 4.9 percent from 4.75 percent in the previous month.
"Overall we think this data is in line with RBI's inflation trajectory for 2016/17 of 5 percent by March-end. We continue to expect a 25 basis points rate cut in April and pause thereafter as demand-side pressure from salary increases, fuel and services inflation is likely to prevent the CPI from falling below 5 percent."
RUPA REGE NITSURE, GROUP CHIEF ECONOMIST, L&T FINANCE HOLDINGS, MUMBAI
"Food prices have eased considerably, and even though there is uncertainty about inflation going ahead from monsoon, deflationary tendencies have become very acute.
"Given that the government has stuck to its fiscal consolidation, I hope the RBI will cut the rate by 50 basis points in April to have a material impact on the borrowing cost of corporates.
"When inflation conditions are benign and there is no danger of overheating, then it is the right opportunity for RBI to give a big boost to the economy."
MURTHY NAGARAJAN, HEAD FIXED INCOME, QUANTUM MUTUAL FUND, MUMBAI
"This number will only boost confidence that a 25 bps rate cut is certain. The only question is whether he (RBI Governor Rajan) does it now or in the April policy.
"More or less this should be last rate cut until monsoon. If monsoon is good we can expect one more rate cut."
