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  3. Moderation in inflation to create more room for RBI’s rate cut: NCAER

Moderation in inflation to create more room for RBI’s rate cut: NCAER

28 Feb 2025 Evaluate

National Council of Applied Economic Research (NCAER) in its monthly economic review has said that moderation in inflation to five-month low of 4.3 per cent in January has provided Reserve Bank of India (RBI) more space to cut interest rate in policy meet. Recently, RBI reduced the policy repo rate by 25 basis points to 6.25 per cent. The upcoming monetary policy committee meeting is to be held in April. Despite the global headwinds, NCAER said some of the high-frequency indicators of the Indian economy have turned kinder and the developing turnaround is visible in indicators like Purchasing Managers' Index for manufacturing, GST collections and non-EV and EV sales.

PMI for manufacturing increased to 57.7 in January, signalling expansion, while PMI for services remained at an elevated level of 56.5. As per the economic think tank, GST collections, gross and net, achieved robust double-digit growth of 12.3 per cent and 10.9 per cent, respectively in January 2025, as compared to subdued a growth of 7.3 per cent and 3.3 per cent in December 2024. While talking about inflation and scope for rate cuts, NCAER Director General Poonam Gupta has said that moderation in inflation (headline inflation to 4.3 per cent) has opened up more policy space. The agriculture sector is also exhibiting much-needed resilience, which bodes well for both inflation control and rural push to the economy.

Further, she added that the continued outflow of FIIs is another factor that needs to be monitored as the Empirical studies show that FII flows are driven more by external factors than by domestic ones, and hence are quite volatile in nature. As in the past, the current phase of reversal of FII flows from India is a global phenomenon and is associated with reversals from many other emerging markets.

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