Retail inflation declined to a six-month low in March on the back of softer vegetables and pulses prices, opening room for further reduction in interest rates a few months later should the softening trend continue.
The consumer price index ( CPI) rose 4.83% in March from a year ago, data released by the statistics office showed, rising well below the consensus estimate of around 5% and sharply lower than 5.26% uptick in February.
The March consumer inflation is below the Reserve Bank of India's target of 5% consumer inflation by the end of FY17.
RBI had cut repo rate, the key policy rate, by 25 basis points on April 5 while adding that monetary policy stance remains accommodative, implying that rate could be cut further if inflation fell. One basis point is one hundredth of a percent. India's weather office has forecast a normal monsoon rainfall after two-years of deficiency, which should further ease inflation concerns. The other risk to inflation is from demand pressure arising from the rise in wages of government employees with the implementation of the seventh pay commission.
Retail inflation in vegetables eased to 0.54% in March from a high of 6.4% in January. Pulses inflation fell to a six-month low of 34.15% in March. Inflation in the foods and beverages category declined to 5.27% in March from 5.52% in February.