Following the Reserve Bank of India (RBI) leaving its repo rate unchanged at Thursday’s meeting and given that measures of activity have picked up recently and inflation is set to fall only gradually in the coming months, the forecast for rate cuts have been reduced to 100 basis points this year, according to Capital Economics.

It was widely expected that the RBI would leave the repo rate at 8.5 percent, after having lowered the cash reserve ratio just last week. Going by the Capital Economics report, the main point of interest was therefore in the policy statement. In the event, it gives little encouragement that rate cuts are imminent as the RBI’s guidance simply stated that “inflation risks remain, which will influence both the timing and magnitude of future rate actions.”

Capital Economics also points that figures released earlier in the week provide further evidence that inflationary pressures have fallen in the past few months. The headline rate of wholesale price inflation rose to 7.0 percent in February, from 6.6 percent in January.

Capital Economics reports that the RBI’s preferred measure of underlying price pressures, non-food manufactured prices, also rose by only 0.4 percent m/m. This measure has now fallen to below 6 percent on a 12-month basis and to just 4 percent annualized over the most recent three-month period.

At the same time Andrew Kenningham, Senior Global Economist of Capital Economics, notes that both headline and core inflation are likely to fall only gradually from now on. The RBI stressed the risks from higher oil prices and the exchange rate.

Evidence that economic activity has re-accelerated may also encourage the RBI to proceed gradually with rate cuts this year, says Capital Economics.

In the view of Capital Economics, the evidence that inflation is moderating is compelling enough for the Bank to cut its repo rate by 25bp in April, though this is certainly not a done deal.