Despite short-term spike in food prices, CPI inflation is expected to follow the RBI’s expected glide path and moderate to 7.5%-8.0% by Jan 2015. While a part of this decline would be aided by favourable base, sub-potential growth amidst improving structural levers should also be supportive.
According to YES Bank’s India Data release, with 8% CPI target well within attainable sight, monetary policy’s goal post has begun to veer towards medium-term target of 6%. The movement from 8% to 6%, according to the Bank, would require fiscal policy to play a dominant role through alleviation of supply side bottlenecks and through revival of investment activity.
The government’s measures to ease food inflation, amid improving investment demand could create greater room for monetary policy to play a complementary role and may open up space for monetary easing in April-Sept 2015.