Inflation data raise rate cut hopes; Keep an eye on rate sensitives

Last Updated: Fri, Oct 14, 2016 13:10 hrs
Retial Inflation

With retail price inflation and wholesale price inflation trending lower in September, it looks another rate cut is very likely in the foreseeable future.

Data released by the government this afternoon shows India's annual rate of inflation based on wholesale prices to have eased on a month-on-month basis to 3.57% in September from 3.74% in August.

During the corresponding period last year, wholesale price inflation stood at -4.59%. After contracting for seventeen straight months, wholesale price inflation rose in April this year.

On Thursday, the government had released the data on retail price inflation. The data showed India's consumer price inflation to have slowed more than expected in September, advancing 4.31% (year-on-year), compared to 5.05% in August. In September 2015, inflation was 4.41%. While prices of food and beverages rose 4.12% annually and those of clothing and footwear increased 5.19%, housing costs were up 5.18% and fuel prices increased 3.07%.

On October 4, 2016, the Monetary Policy Committee headed by Reserve Bank of India Governor Dr Urjit Patel cut repo rate by 25 basis points to 6.25% and signaled more tolerance towards inflation.

Now, with consumer price inflation set to fall in line with the central bank's forecast of average 5% inflation in the fourth quarter of the current fiscal, chances of another rate cut look fairly bright.
If fourth quarter results fall in line with expectations or manage to beat forecasts, then the market, particularly, rate sensitive stocks, may well see a few smart rallies.

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