Diesel price cut to reduce WPI inflation by 0.2 per cent in next two months, says Motilal Oswal

Diesel deregulation would result in a sharp fall in diesel inflation to 4 per cent from 13 per cent by December 2014, says Motilal Oswal.

This, in turn, would pave the way for a sharper decline in inflation indicators, ahead of expectations.

The government on Saturday deregulated diesel, leading to a cut in its price by Rs 3.37 per litre.

As a result of these developments, the Reserve Bank of India (RBI) may cut key policy rates two or three quarters ahead of consensus expectations, said Motilal Oswal, adding that the government would be able to limit the oil subsidy bill within the budgetary target of Rs 63,400 crore.

According to Oswal, the government's fiscal deficit target of 4.1 per cent is now more credible.

(Reuters)