CPI Inflation came in much lower than expected for the month of April at just 4.87 per cent. Economists were largely expecting inflation to touch around 5.15 per cent.
The country's central bank may wait for the WPI numbers due later today before taking any decision. It looks almost certain that there would be an interest rate cut either later this week or definitely in the RBI's next policy.
On Wednesday a day after the CPI inflation data was out, banking stocks surged on hopes that there would be an interest rate cut.
Union Bank of India surged 7 per cent, Syndicate Bank was up 4 per cent and private sector lender Axis Bank gained a huge 7 per cent in trade.
Given that rural demand is poor, there is unlikely to be a spike in inflation and it may continue to hover around the 5 per cent mark. Another 25 basis points later in the year, could take the cut to as much as 50 basis points from the current levels.
The only worry, however, is that crude prices must stabilise. In the last few weeks have seen crude prices rallying and that is not good new for inflation. This could prompt the RBI to halt any further interest rate cuts.