Drop in inflation does not clear the way for a policy rate cut

Last month’s drop in India’s wholesale price inflation will have come as a relief to policymakers who have been trying, with limited success, to lower inflation over the last three years. Market clamour for more rate cuts is set to rise. However, keeping inflation low on a sustained basis will require a more calibrated pace of easing than is widely realised. We maintain our call that policy rates will remain on a prolonged hold.