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Today’s inflation numbers are likely to cement expectations for a back-to-back rate cut in April. Broad-based moderation in food inflation, led by perishables, is likely to be the main reason behind the slower headline print in February. Our estimate is for CPI inflation to ease to 3.9% y/y (Jan: 4.3%), a shade below the mid-point of the target range as vegetables continue to contract on sequential basis, alongside pulses and other protein sources. Non-food segments are expected to stay benign, with core prints at below 4%. Subdued global oil prices have also tempered the knock-on effect from a weaker currency. Into 2Q25, deceleration in vegetables is likely to hit a hurdle heading into the summer months as the national meteorological agency cautioned over upcoming high temperatures and drier months. Dovish policy minutes, a downshift in annual growth this year and a sub-4% inflation print lay the ground for 50bp more cuts this year, with the next move likely in April.
Onshore markets are weighing domestic and global cues. India’s equity benchmark indices have steadied after an extended period of correction as earnings, valuation and growth expectations are reset. Foreign portfolio outflows persist, much like the other Asian bourses (ex-China). Whilst still growing, the pace of incremental demat new account additions by retail investors have moderated from a monthly high of 4.6mn in July 2024 to 2.8mn in January 2025 according to data from clearing houses cited by the press, likely influenced by market volatility and ytd underperformance. The pace of retail activity in equities rose in a linear fashion in the past three years, with some levelling off in activity here unlikely to be viewed as a structural shift in sentiments. India’s indices’ relatively low beta to global triggers is expected to mark a bottom for the price action once valuation metrics correct to reasonable levels. On the currency markets, DBS FX Strategist opined in yesterday’s note that markets’ move from downgrading US exceptionalism towards US recession fears, could see the greenback transition from being sold off to being sought after as a haven currency. Notwithstanding the dollar pullback in the past fortnight, USDINR stayed bid over 87.30 on Tuesday, down ~2.0% in 2025 YTD. Separately, the centre sought the parliament’s approval for a net additional spending of INR515bn in FY25 to meet commitments towards subsidies and defence pension. With FY25 nominal GDP growth revised up to 9.9% vs revised 9.7%, the consequent slight increase in the absolute fiscal deficit (INR basis) allows for the extra spending to be accommodated without breaching the revised deficit target at -4.8% of GDP.
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Related Insights
- Research Library12 Mar 2025
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Related Insights
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- USD Rates: Job opening data surprised; cautious about today’s CPI 12 Mar 2025
- Recalibrating our FX forecasts 12 Mar 2025