MPC Needs To Be Mindful Of Core Inflation, Says JP Morgan’s Sajid Chinoy

JP Morgan expects the Reserve Bank of India’s monetary policy committee to cut the benchmark interest rate by 25 basis points in the April bi-monthly policy, said Sajid Chinoy, its chief India economist, based on the modest headline inflation data.

But that’s not the only data point to keep in mind, he warned in an interview with BloombergQuint. “The MPC would need to be very careful just to monitor the signals emanating from core (inflation), and that some of these prints for growth are because of the base effect.”

CPI inflation stood at 2.57 percent in February compared to a revised 1.97 percent in January 2019—well below the mid-point inflation target of 4 percent (+/-2).

Core inflation, on the other hand, has stayed elevated between 5.5 and 6 percent for the last two months, Chinoy said.

Reserve Bank of India Governor Shaktikanta Das-led MPC reduced key repo rate by 25 basis points in February. Das had said that if the one-year CPI inflation projections remain below 4 percent, that will open up some space for more stimulus.

Economic growth slowed to 6.6 percent in the three months through December as political uncertainty ahead of the general election compounded challenges posed by weak domestic demand and a global slowdown. This is merely due to the base effect, said Chinoy. “The GDP numbers will be soft because you're contending with very unfavourable base effects. This is the time last year when growth rose to more than 8 percent. For now, growth appears to have stabilised.”

Watch the full conversation here: