New Delhi: After the decline in retail inflation in February to 3.6 per cent, the March inflation print is also trending below the RBI's 4 per cent target which is likely to lead to another rate cut by the central bank next month, according to an HSBC Research report.
"The RBI has already embarked on a rate cutting cycle and is likely to go in for another 25 basis points reduction in the April monetary policy committee meeting, taking the repo rate to 6 per cent," HSBC Research said.
"Currently, March quarter inflation is trending lower than the RBI's forecast for the quarter. While winter crop sowing has been good, temperature in the next few weeks is important as the wheat crop is in its grain-filling stage," the report states.
Deflation in food continued for the second consecutive month in February, down 1.0 per cent month-on-month. This was led by a fall in vegetable, pulses and egg, fish & meat prices. That said, prices of cereals, sugar and fruits rose, the report points out.
Core inflation, which excludes food and fuel goods, rose across all definitions due to a sharp rise in gold prices during February. However, excluding gold, core inflation also remained firmly below the 4 per cent mark in annual terms and, at its long-term average in sequential terms, the report said.
It also highlights that the rupee has depreciated by 4 per cent vs USD since October, which could add 30 bps to inflation, going by the FX sensitivities. However, a benign outlook on oil prices (HSBC commodity forecast for Brent is USD73/b for 2025), and Chinese excess capacity is likely to keep a lid on core inflation.
Putting it all together, we think that headline inflation will likely average 4 per cent in FY26, the report concludes.
RBI Governor Sanjay Malhotra last month announced a 25 basis cut in the policy rate from 6.5 per cent to 6.25 per cent in the monetary policy review to accelerate growth amid global uncertainties.
He said that inflation has declined and is expected to further moderate and gradually align with the RBI’s target of 4 per cent.
HSBC has projected India’s GDP growth at 6.5 per cent. It sees an upsurge in rural demand post-harvest, a growth impulse from a cut in the income tax rate for the middle class, and monetary policy easing is likely to support growth in the April-June quarter. However, weaker goods exports after the global restocking cycle, ahead of US President Donald Trump’s tariff threats, could be a drag, the report added.
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