Inflation, factory output data warrant

monetary easing in 2015

Both inflation and factory output data reinforce the case for monetary easing this
year and the Reserve Bank of India may go for a policy rate cut before the February
budget, say experts.
Both inflation and growth data reinforce the case for monetary easing this year. We
expect 50 bps in rate cuts in 2015, HSBC Chief India Economist Pranjul Bhandari
said.
Echoing sentiments, Citigroup India Economist Rohini Malkani said the latest
inflation data and benign outlook strengthens the case for monetary easing, adding

that we reiterate our view that the normalisation in inflation could result in rates
being eased by 100bps by FY16.
Given current growth-inflation dynamics and RBIs December policy statement of
the possibility of acting outside the policy review cycle, we wouldnt be surprised if it
does cut before the February budget, Malkani said.
RBI Governor Raghuram Rajan during the last monetary policy review in December
2014 kept interest rate unchanged, saying that a shift in stance is premature but
hinted that a cut may come in early 2015 if inflation continues to ease and
government acts on the fiscal side.
RBI is scheduled to announce its sixth bi-monthly monetary policy on February 3.
According to official figures, industrial production grew at five-month high of 3.8 per
cent in November last year, while retail inflation inched up to 5 per cent in December.
According to HSBC, the CPI inflation would average in the 5.5-6 per cent range in
the first half of 2015. RBIs current target is 6 per cent CPI inflation in January 2016.
Meanwhile a DBS in a research note further said that overall, we expect the
production trend to improve gradually. This should see GDP growth recover to 5.6
per cent in FY14/15 and accelerate to 6.1 per cent in FY15/16, the DBS report
added.