Good news on the inflation front, and potentially even better news for interest rates to possibly come down earlier than expected and help kick-start the economy. India's Consumer Price Inflation (CPI) eased for the second consecutive month in September to touch 6.46% YoY vs 7.73% in August. This is the lowest level since the Government started releasing the data in 2012. Slowing food inflation and a favourable statistical base helped. Because stubbornly high inflation over many months has hitherto kept interest rates high the latest inflation readings make encouraging news. However, the risks of price shocks on food items from a poor monsoon, and a spike in oil prices will make the RBI cautious about cutting interest rates too soon. A rate cut this year looks improbable. The economy will get the boost it so badly needs when interest rates are finally cut and consumer demand is revived. A lower trend in inflation is also needed to give businesses confidence that interest rates will be lowered in the coming months - and help kick-start the capital expenditure ("capex") cycle.

David Fuller's view

Here is the India Report.

I am a little more optimistic that the RBI will commence interest rate cuts before yearend, given global disinflationary pressures, including generally soft commodity prices, not least for crude oil.  If so, a rate cut would probably occur in November.  Meanwhile, Narendra Modi and the BJP face an important election in Maharashtra this week, the outcome of which is likely to have some impact on India’s stock market, if not in this environment, shortly thereafter.