Higher inflation rate is unlikely to push the Reserve Bank of India (RBI) to change its key rate any time soon.
Bengaluru: India’s retail inflation likely breached the central bank’s 4.0 per cent medium-term target in November after unseasonably heavy rains sent food prices soaring, a Reuters poll showed.
In the poll of more than 30 economists, annual consumer inflation, due to be released on Dec. 12 at 1200 GMT, was seen surging to a 13-month high of 4.20 per cent in November from October’s 3.58 per cent. The higher inflation rate is unlikely to push the Reserve Bank of India (RBI) to change its key rate any time soon, economists in the poll said.
November’s heavy rains “created lots of damage” for perishable fruit and vegetable crops, said Rupa Rege Nitsure, group chief economist at Larsen & Toubro.
“We have seen that translated into price rises for onions, tomatoes and other perishable commodities”.
Increased house rent allowances for government employees and rising crude oil prices added to inflationary pressures alongside higher raw material costs due to the Goods and Services Tax (GST) rollout, she said.
Wholesale prices are expected to have risen 3.78 per cent last month from a year earlier, compared to a 3.59 per cent rise in October.
At its December 6 policy meeting, the central bank raised its inflation projection by 10 basis points to between 4.3 and 4.7 per cent for the six months ending in March. It kept interest rates steady and stressed a neutral policy stance.
The RBI cut rates by 200 basis points from January 2015 until August this year while food and energy prices were down. It is likely to keep them unchanged through the end of 2018, according to a separate Reuters poll.
“Interest rates will remain stable for some time before they (the RBI) start hiking them because industrial growth is still weak,” Nitsure said.
“Recovery is happening in a few sectors but it has not spread to all sectors and private investment sentiment also remains low.”
Industrial output growth eased to 3.0 per cent in October from September’s 3.8 per cent, as demand continued to suffer from disruption caused by the new national sales tax as well as last year’s currency clampdown that wiped out over 85 per cent of the cash in circulation.
But halting a five-quarter slide, India’s economic growth rebounded in the three months ending in September with businesses starting to overcome troubles from implementation of the new tax.
“We still have some output gap but it’s not as bad as it used to be a couple of quarters back. It will not make any sense for the RBI to just react to the (inflation) number. They also have to look at other factors,” said Arun Singh, lead economist at Dun & Bradstreet India in Mumbai.
The poll also showed India’s trade deficit likely narrowed to $13.75 billion last month from October’s near three-year high of $14.02 billion.