Headline inflation at 7.5 per cent for May is in line with expectations, but analysts expect the Reserve Bank of India to go ahead with rate cuts in its next policy review.

Anis Chakravarty, Senior Director, Deloitte India, said it was worrying to see that the final index for March had been revised upwards to 7.69 per cent from 6.89 per cent. Besides January, headline inflation now had been consistently over 7 per cent. “Given the fluctuations in the commodity market, we don't see inflation closing below 7 per cent in the near future. Given the pressure on the rupee as well as talks on diesel excise, an upside risk of inflation spilling over 8 per cent exists.” Given the slowdown in GDP and low IIP growth, policy-makers needed to look for options to trigger growth, which might come at the cost of inflation. ``As core numbers had remained within tolerance, we expect the RBI to go ahead with a rate cut in the next policy review,'' Mr. Chakravarty said.

His analysis was in line with that of Devendra Kumar Pant, Director, Fitch Ratings, who said, “declining core inflation and demand contraction will weigh heavily on the RBI's monetary policy action on June 18 and odds are tilted in favour of the RBI, focussing towards growth enhancing measures.” Demand contraction (5.3 per cent of GDP growth during January-March) and declining core inflation were pointers towards the impact of RBI's monetary policy action, Mr. Pant felt.

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