Monetary Policy post CPI inflation numbers for August 2020 - Angel Broking
Mr. Jyoti Roy - DVP - Equity Strategist, Angel Broking Ltd
"Chances of rate cuts by the RBI in its next MPC meeting seems to have dimmed with post the release of the CPI inflation for the month of August 2020 which came in at 6.69%.Inflation numbers for July was revised to 6.73% from 6.93%. The CPI inflation continues to remain stubbornly higher than 6% which is the upper end of the RBI's tolerance range for inflation. Though the high inflation numbers could be partly explained by the high food inflation of 9.05% the miscellaneous component which accounts for 27.3% of the CPI is also running high at 6.99% for the month of July. Clothing & footwear inflation at 2.77% and housing and fuel inflation at 3.1% each are helping to keep a lid on inflation.
Though we expect the CPI inflation numbers to subside going forward as food inflation is expected to come off due to a bumper Kharif crop we believe that the core inflation will continue running high for some time to come which can keep inflation above the RBIs target rate of 4% in the near future. Therefore we believe that the RBI is unlikely to cut its policy rates in the next MPC meeting which starts from the 29th of Sep'20. However we believe that the RBI will continue to use unconventional policy measure like OMOs and special OMOs in order to bring down the rates at the longer end of the yield curve given that the spread between the overnight and the 10 year G-Sec is abnormally high at over 200bps and is hindering full transmission of the 250bps rate cut by the RBI so far."
Disclaimer:The article above is a gist / extract of the original report prepared by the research firm / brokerage firm. This article is not to be considered as an offer to sell or a solicitation to buy any securities. This article is meant for general information only. www.equitybulls.com, its employees or owners or the research firms, its employees or owners won't be responsible for any liability that may arise from information, errors or omissions in these articles. www.equitybulls.com or its employees or owners / the research firms or its employees or clients or owners may from time to time hold positions in securities referred in this article. For detailed research reports, please contact the concerned research firm directly.