Wholesale inflation eased marginally to 3.58% y/y in December after hitting an eight-month high of 3.93% y/y in November while the CPI inflation for December 2017 rose to a 17-month high of 5.21% y/y from 4.88% y/y in November. With inflation numbers coming from the supply side of the equation, we expect pressure to mount on the Reserve Bank of India (RBI) to lower its repo rate in the upcoming monetary policy meeting with the aim of boosting investments and support the economic growth momentum. We feel the RBI need to manage the continuous rise in petrol and surging diesel prices due to the rise in global crude oil prices. It can affect import bills and subsequently impact exchange rates. We think the RBI is most likely to adopt the wait-and-see attitude.

• Wholesale inflation eased marginally to 3.58% y/y in December after hitting an eight-month high of 3.93% y/y in November. Meanwhile, the CPI inflation for December 2017, which was released recently, rose to a 17-month high of 5.21% y/y from 4.88% y/y in November.

• The latest wholesale inflation data showed food prices, especially vegetables, onions, eggs and fruits continued to rise, pushing the inflation level above 3.00% since August. As for the consumer price, it is not a major concern from the higher number due to the base effect though there is evidence of hardening housing, fuel and food prices.

• With inflation numbers coming from the supply side of the equation, we expect pressure to mount on the Reserve Bank of India (RBI) to calibrate its current monetary policy. Pressure will be on the RBI to lower its repo rate in the upcoming monetary policy meeting with the aim of boosting investments and support the economic growth momentum.

• We feel the RBI need to manage the continuous climb in petrol and surging diesel prices due to the rise in global crude oil prices. It can affect import bills and subsequently impact exchange rates. We think the RBI is most likely to adopt the wait-and-see attitude.

Source: AmInvest Research - 16 Jan 2018