Inflation has declined to 14-month low and came in at 3.92 per cent for the week ended February 7 against 4.39 per cent the week earlier. Earlier, a poll conducted by CNBC-TV18 saw inflation at 4.01 per cent.
The inflation number made headlines last year after it hit double digits. Post August though, the number has been steadily declining.
The WPI numbers for all commodities are down 0.2 per cent at 228 (WoW), and December 12 WPI inflation revised to 6.24 per cent vs 6.61 per cent (WoW). Manufactured items were down 0.4 per cent (WoW).
Commenting on the inflation numbers, Mridul Sagar, Chief Economist, Kotak Mahindra Bank, said there are reasonable chances for the inflation to fall to about 2 per cent by March end.
Inflation could move in to a brief deflationary spell and in to a negative terrain between June and September and thereafter, inflation could come back in the second half.
Sagar said the Reserve Bank of India Governor D Subbarao indicated on Wednesday that there is a room for more rate cuts and it is an issue of timing and calibration of the size.
"We expected around 50 bps cut post Budget and we are still expecting something like that might happen. I am sure the Central Bank would take into account analysis of this whole macro position."
In some sense, the key issue is that the fiscal shock has been large and the amount of extra borrowing, which the government is doing till March 31, automatically adds to liquidity whether Cash Reserve Ratio (CRR) is cut or not, which in turn weakens the case for imparting substantially more liquidity.
According to Sagar, the credit growth might go to as low as 10 per cent, because in first quarter of 2010 there could be contractions coming in, which was not the case last year.
"We would see credit growth falling sharply to around 17-18 per cent by March and I won't be surprised if the number is a bit lower. However, the banks are pretty positive that they will be able to maintain around 20 per cent credit growth even this year."
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