The domestic rating agency projects consumer price index (CPI)-based inflation to rise to 3.9-4 per cent in March this year, implying an average of 3.9 per cent in the fourth quarter (Q4) of FY25, versus the central bank’s projection of 4.4 per cent for that quarter.
The CPI inflation receded sharply to a seven-month low of 3.6 per cent in February 2025 from 4.3 per cent in January.
ICRA expects the wholesale price index (WPI)-based inflation to remain steady at close to 2.4 per cent in March 2025 despite the expected fall in the WPI-food inflation and softening in crude oil prices.
Overall, ICRA forecasts the headline WPI to average at 2.3 per cent in FY25 and further at nearly 2.7 per cent in FY26.
The WPI inflation rose slightly to 2.4 per cent in February this year from 2.3 per cent in January, largely driven by manufactured non-food items and fuel and power.
ICRA expects rural demand to remain upbeat, aided by the farm cash flows on account of the rabi harvest starting from March 2025. Besides, higher-than-normal reservoir levels would provide some insurance against a delayed start or inadequate rainfall in the early part of the monsoon season.
The available data for Q4 FY25 shows that the trend across non-agri indicators is fairly mixed, with half of the 18 indicators witnessing improvement in January-February 2025 over the growth rates seen in Q3 FY25, and the other nine indicators recording a deceleration in this period.
The February 2025 CPI inflation print falling well below 4 per cent has cemented the expectation of a back-to-back 25 bps rate cut in the April 2025 monetary policy committee (MPC) meeting of the central bank, ICRA noted in a release.
This may be followed by another 25 bps repo rate cut either in June or August meetings this year, depending on the next GDP growth print for Q4 FY25, which will be available at end-May 2025.
ICRA also remains apprehensive that tight liquidity conditions may delay transmission of rate cuts to bank deposit and lending rates, with the same largely taking place in the latter part of Q1 FY26.
ALCHEMPro News Desk (DS)
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