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FxWirePro Poll: Subdued inflation and negative demonetisation effect to pressurize RBI for rate cut in February

India’s inflation continued to remain subdued during the month of November, exerting deeper pressure on the Reserve Bank of India (RBI) to undertake easing policy in the next 2-day bi-monthly monetary policy scheduled to be held on February 7, an FxWirePro Poll showed Monday. 9 out of 10 economists polled at FxWirePro remained optimistic for a RBI rate cut in February 2017.

India’s consumer prices tumbled in November because of weak food prices. Consumer price inflation in India slowed to 3.63 percent year-on-year in November, owing to the drops in prices of food. The downward surprise was mainly because of fruits and vegetables.

Additionally, India’s wholesale price inflation fell during the month of November, at the slowest pace in five months. However, it came in higher than what market participants had priced in initially.

India's wholesale prices rose 3.15 percent year-on-year in November, its slowest pace in five months, data released by the Indian Ministry of Commerce and Industry showed Wednesday. The data compared with a 3.12 percent annual rise forecast by economists in an FxWirePro poll.

Moreover, the country’s inflation is anticipated to have eased further in coming months due to the failure of demonetisation. This masterstroke brought in a pool of electronic transactions that deprived many of hand-to-hand cash exchanges, thus leaving the citizens in a wide array of lower spends overall.

The lower spread of cash transactions, coupled with a maximum limit on ATM withdrawals has pressurised the prices of many retail commodities, including luxuries and real estate prices as well.

"The RBI is expected to slash its benchmark repo rate by 25 basis points to 6.00 percent, following a decline in inflation expectations," said Chintan Master, Director, Finrex in an exclusive interview with FxWirePro last month.

The 2017-18 Union Budget, expected to be unveiled by February 1, 2017 is likely to incorporate a slash in the income tax bracket as well, allowing consumers to combat the negative effects of demonetization. The policy implementation is expected to boost consumer spending, allowing door for some recovery in inflation expectations.

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January 20 07:00 UTC Released

DEProducer Prices YY

Actual

1.0 %

Forecast

1.0 %

Previous

0.1 %

January 20 07:00 UTC Released

DEProducer Prices MM

Actual

0.4 %

Forecast

0.4 %

Previous

0.3 %

January 23 07:00 UTC 399399m

TRConsumer Confidence*

Actual

Forecast

Previous

63.40

January 23 13:00 UTC 759759m

SACPI YY*

Actual

Forecast

Previous

2.3 %

January 23 13:00 UTC 759759m

SACPI MM*

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Previous

-0.2 %

January 23 13:30 UTC 789789m

CAWholesale Trade MM

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Previous

1.1 %

January 23 15:00 UTC 879879m

EZConsumer Confid. Flash

Actual

Forecast

Previous

-5.1 %

January 23 19:00 UTC 11191119m

ARAnnual Industrial Output*

Actual

Forecast

Previous

-2.5 %

January 23 21:00 UTC 12391239m

KRConsumer Sentiment Ind*

Actual

Forecast

Previous

94 bln $

January 24 00:30 UTC 14491449m

JPNikkei Mfg PMI

Actual

Forecast

Previous

52.4 %

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