After a gap of two months due to the pandemic-induced lockdown, the ministry of statistics and programme implementation (MOSPI) published the headline retail inflation number on Monday. For the month of June 2020, the headline CPI inflation stood at 6.1 percent, which was above the Reserve Bank of India's (RBI) comfort level.

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The Food and Beverages index registered inflation of 7.3 percent. Overall, the average headline inflation in Q1FY21 stood at 6.5 percent, YoY.

Despite high inflation numbers, analysts do not see a change in stance by the RBI, and still expect a repo rate cut at the next Monetary Policy Committee (MPC) meeting in order to propel growth.

The RBI had cut repo rate by 135 bps in 2019 and 115 bps since the onset of COVID to 4 percent.

Speaking to CNBC-TV18, Indranil Sen Gupta, India economist at BofA Securities said, "We are of the view that one should look through this number because it is driven by methodological issues as well as supply side disruptions. We think that the MPC should cut about 25 basis points on August 6 and 50 basis points in October.”

"The fundamental drivers of inflation are all very benign. Better monsoon, adequate M3 liquidity, low imported inflation, benign crude oil and a stable rupee. So that is hardly likely to be inflationary. We are looking at a 4 percent contraction in GDP growth," he said.

Experts believe that inflation will not be the driving factor for the MPC, instead, they would focus more on growth.

"MPC is focused towards making sure that the impact of the pandemic on the economy is minimised and there is financial stability and there is adequate liquidity in the system. So, clearly there is a lot of focus on how the financial stability, how the market stability continues and I think that the next meeting MPC will further cut rates – discussion can be between 25-40 basis points," said Neeraj Gambhir, president, head treasury and markets at Axis Bank.

However, analysts at Nomura expect a pause in the August policy to be followed by a 50 bps cumulative rate cut in Q4, as inflation eases and growth concerns mount.

"We expect the RBI to pause in its rate-cutting cycle in August. However, we expect the pause to be short term; in our view mounting risks on growth imply that the rate cutting cycle is not yet over. We continue to expect a cumulative 50bp in additional rate cuts, delivered in October and December (25 bps each)," Nomura said in a note.

Global brokerage CLSA expects the RBI to cut repo rate by another 125 bps cut to 2.75 percent by the end of the fiscal year in March 2021.

Meanwhile, brokerage Motilal Oswal also believes that the RBI in its policy meeting would accord more weightage to weak growth vis-à-vis inflation.

First Published:Jul 14, 2020 11:05 PM IST