India's annual retail inflation rate eased in March to a five-month low helped by a drop in fuel prices, government data showed on Friday, but economists say a rate cut by the central bank is still some months away as food prices remain sticky.
Annual retail inflation (INCPIY=ECI) in March was 4.85%, lower than 5.09% in February, and below the 4.91% forecast by a Reuters poll of 50 economists.
Food inflation, which accounts for nearly half of the overall consumer price basket, rose 8.52% in March, compared with a 8.66% rise in February. Fuel prices fell 3.2% year-on-year, compared with a 0.77% fall in February.
Indian state fuel retailers last month cut petrol and diesel prices, the first change in about two years.
Vegetable prices rose 28.3% on year, while prices of pulses increased nearly 17.7%, eggs were up 10.3% year-on-year.
Core inflation, which strips out food and energy prices, was estimated to be stable at 3.3%-3.4% in March, as compared with 3.3%-3.37% in February, according to two economists. The Indian government does not release core inflation figures.
Volatile food prices have been a key challenge for the government and the central bank, which kept its interest rates unchanged for the seventh consecutive meeting last week and has said it will focus on bringing inflation down to 4%.
Lower retail inflation could help Prime Minister Narendra Modi during two months of national polls starting from April 19, in which he is seeking a third consecutive term. To contain food prices Modi's government has kept a ban on exports of wheat, rice and onions.
"At best, we foresee 50 bps of rate cuts from the monetary policy committee in second half of 2024/25," Nayar said. India's 2024/25 fiscal year started from April 1.
IDFC First Bank economist Gaura Sengupta said: "We expect the RBI rate cut cycle to start from August at the earliest.
"This is contingent on the Fed rate cut cycle starting from June/July. In case the Fed rate cut cycle gets delayed due to adverse U.S. inflation prints, the RBI rate cut cycle could get delayed."
India's economic growth of 8.4% in the December quarter gives the central bank more time to focus bringing down inflation to 4% on a sustainable basis, economists said.
The inflation print has been largely in line with market expectations and is unlikely to be a big moving factor in central bank's reaction function, said Madhavi Arora, an economist at Emkay Global.
