With continuous fall in core inflation numbers and persistent liquidity deficit in the banking system, much beyond the central bank's comfort zone, the Reserve Bank of India may continue with monetary easing and may cut the cash reserve ratio (CRR) in its March policy.
We expect core inflation to trend downward as falling GDP numbers implying subdued demand may result in further decline in core inflation going forward. But we believe that notwithstanding falling GDP and core inflation numbers and downward trajectory in WPI, the Reserve Bank of India will wait until the Union Budget to closely look at the FY 2013 borrowing numbers and overall trends in inflation to start easing the policy rates.
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