There will be some space for furtehr monetary policy easing from the RBI, the report said.
CPI inflation could fall below 4% in November-December period before climbing back to 4.5% in March and accordingly there will be some space for further monetary policy easing, says a Citigroup report.
According to the global financial services major, there is close to 50 bps downside to RBI's March 2017 CPI target of 5% and consequently some space for further easing.
Monetary policy committee (MPC), which has three members nominated by the government and the rest (three) from the RBI, lowered repo rate to 6.25% from 6.50% at the end of two-day deliberations on October 4.
The next meeting of the MPC is scheduled on December 6 and 7.
"We maintain our rate cut view in December policy for now, but we also acknowledge that the December policy could be a close call," Citigroup said in a research note.
It further said the likely surge in banking liquidity and rise in global market volatility introduce "some risk" to its rate cut view.
"We await more clarity on liquidity and global financial market developments," it noted.
Easing food and fuel prices helped pull down retail inflation to 14-month low of 4.20% in October this year, strengthening the case for RBI rate cut next month.
On the CPI inflation numbers Citigroup said "this marks the third straight month of decline, and in all likelihood there could be two more."
The report noted that the moderation was broad-based with deceleration in each of the three components -- food inflation (2.8% vs 3.7% last month), fuel inflation (3% vs 3.1%) and core inflation (5.1% vs 5.2%).
The Reserve Bank will present its 5th bi-monthly policy statement on December 7. It takes into account CPI data as a key input to decide on its monetary policy review.
RBI has targeted to contain inflation at 4% by March 2017, with 2% risk on either side.
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