Economists said the decline in inflation enhances the likelihood of a rate cut when the Reserve Bank of India’s Monetary Policy Committee (MPC) convenes from April 7 to 9. In February, the MPC had reduced the policy rate by 25 basis points to 6.25%, marking the first cut in five years.
Higher import costs
“With inflation coming down to less than 4% and likely to remain low in March too, there is a good chance of a further repo rate cut in April given that RBI has been doing everything to provide easy flow of liquidity,” said Madan Sabnavis, chief economist, Bank of Baroda.
Aditi Nayar, chief economist at ICRA, said the rate cut in April may be followed by another 25 bps reduction either in June or August, depending in large part on the next gross domestic product (GDP) growth print for the March quarter.
Among food items, oil and fats, and fruits recorded the highest inflation at 16.4% and 14.8%, respectively, in February. “The former has also been affected by the volatile rupee, which has pushed up imported cost,” said Sabnavis.
Vegetable inflation declined by 1.1%. Other items like eggs (3%), pulses and products (0.4%), and spices (5.9%) also saw a decline. Inflation in personal care and effects rose to 13.6% in February from 10.6% in January. Rural inflation sharply decreased to 3.8% in February from 4.6% in January, while urban inflation fell to 3.3% from 3.9% in the same period.
