Mumbai, Feb 13 (PTI) With retail inflation easing further to a 19-month low at 2.05 percent in January, the Reserve Bank may surprise with another 25 bps repo rate cut to 6 percent in the April policy, says a brokerage report.

The consumer price index (CPI)-based retail inflation was revised downwards to 2.11 percent for December from the earlier estimate of 2.19 percent. In January 2018, the retail inflation was at 5.07 percent.

“Benign inflation seals the case for another rate cut.

January CPI print of 2.05 percent further reaffirms our belief that the Monetary Policy Committee (MPC) would cut the repo rate by another 25 basis points (bps) to 6 percent in April,” Kotak Securities said in a report Wednesday.

The MPC is scheduled to meet from April 2 to 4 to announce the seventh monetary policy.

In the sixth bi-monthly monetary policy review announced on February 7, the RBI surprisingly reduced the repo rate by 25 bps to 6.25 percent-making the first rate reduction in 18 months.

The central bank also changed its policy stance to ‘neutral’ from the earlier ‘calibrated tightening’, signalling a further softening on its approach towards interest rates.

The monetary authority has also lowered its estimates on headline inflation for the next year, and expects the number to print at 2.8 percent in the March quarter, 3.2-3.4 percent in first half of next fiscal and at 3.9 percent in third quarter of FY20.

The brokerage report said the downward revision of 60 -80 bps to its H1 of FY20 inflation projections to 3.2-3.4 percent and the opening up of the output gap have improved the probability of multiple rate cuts in 2019.

“While inflation in the near-term is likely to remain benign, any further monetary accommodation will hinges on the evolution of inflation and growth dynamics,” it said.

The MPC would be constrained to cut rates aggressively as inflation is expected to to inch up over 4 percent in H2 of FY20, with upside risks from volatility in food and fuel prices, monsoons, fiscal slippages and an elevated core inflation, the report said.

The last week’s policy also laid to rest the RBI’s ambivalence between core and headline inflation numbers, choosing to go with headline price index.

This is published unedited from the PTI feed.