India CPI inflation for October 2020 - Angel Broking

Mr. Jyoti Roy, DVP - Equity Strategist, Angel Broking Ltd

"CPI inflation for the month of October 2020 increased further to 7.61% from a revised figure of 7.27% in September. The CPI inflation continues to remain stubbornly higher than 6% which is the upper end of the RBI's tolerance range for inflation. Food inflation accelerated to 10.16% from 9.73% in September while the miscellaneous component which accounts for 27.3% of the CPI remained stable at 6.88% for October as compared to 6.89% in September. Clothing & footwear, Housing and fuel inflation at 3.17%, 3.27% and 2.28% though are helping to keep a lid on inflation.

Though we expect the CPI inflation to subside going forward once food inflation comes off due to a bumper Kharif crop we believe it will continue to stay above the RBIs comfort zone of 4% for some time to come. Therefore we believe that a rate cut is unlikely in the next MPC meeting in December. However we believe that the RBI will continue to use unconventional policy measure like TLTROs, OMOs, special OMOs etc. in order to bring down the rates at the longer end of the yield curve given that the spread between the overnight and the 10 year G-Sec is still very high at ~190bps and is hindering full transmission of the RBI's 250bps rate cut in the current easing cycle."

Source : Equity Bulls

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