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You are here : Moneycontrol » News » Economy

Inflation at 8.24%; RBI likely to act soon: Experts

Published on Fri, Jun 06, 2008 at 11:25 , Updated at Mon, Jun 09, 2008 at 10:22
Source : CNBC-TV8

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Inflation for week ended May 24 is at 8.24% versus  8.1%. A CNBC-TV18 poll saw inflation for the week ended May 24 at 8.25%.

The WPI (Wholesale Price Index) for all commodities is up0.1% at 229.8 for May 24. The inflation for March 29 has been revised to 7.75% versus 7.41%. The WPI of the non-food articles is up 0.5% at 231.5 for week ended May 24. The imported edible oil WPI is up 6% for week ended May 24.

Finance Minister P Chidamabaram said he is willing to take more steps to tame inflation. The tax to GDP ratio will reach 13% in FY09. He said the high inflation is mostly due to the relentless oil price rise.

 

Rajiv Anand, Head Investments, IDFC MF expects inflation to go inch up to 9%-9.50% going forward. He feels the markets have pretty much priced in the inflation going to about somewhere between 9% to 9.50%. He thinks the major problem is clearly the supply. He said that one could track inflation assuming that commodities behave themselves over the next three-six months.

Anand expects the RBI to act in the next few weeks or probably in the next credit policy to manage inflationary expectations. He said that the RBI may consider various options like a Cash Reserve Ratio (CRR) hike or a Repo rate hike or increased issuances of Market Stabilisation Scheme (MSS) or appreciating the Rupee. He however believes it would be a combination of all four.

MBN Rao, CMD of  Canara Bank said that inflation definitely is a matter of concern for all of us. It has started picking up from December. But he believes that with all the measures the Government of India and RBI have taken, inflation will come under check. He said that there no doubt would be an immediate spurt because of the fuel price hike. However, that’s only going to be temporary, he added. He believes that once the price hike is absorbed and the dust settles down, inflation should also come down in the medium term. He expects a minimum growth rate of 8.5% in the current year for India.

Rao feels that the inflation is not a reflection of the Indian economy. Infact, it’s more of external factors like the crude prices and the international food prices. He said the domestic economy has been doing extremely well and will continue to do well.

Ananth Narayan, Treasury Head of Deutsche Bank said inflation is going to be higher. He said two weeks down the road inflation may go up to 9.5%. He said that things should settle down after 4-5 month. He feels there are bright spots in the market and one year down the road thanks to the base effect, inflation will go down.

 

Saugata Bhattacharya, Economist, Axis Bank said that till now the inflation rate YoY are still pretty high. But the rate of rise that had gone up from 7%-8% to 38%, has come down to about 24%-30%, and that’s good news. Metal prices seem to have contained and the current inflation is due to oil prices. He said the oil price hike will feed in into various ancillary commodities, energy prices, petrochemical prices, chemical prices, all the lubricants and so on, you might see a  large impact of this on inflation. He hopes the numbers don’t touch 9.5%. Transport costs will add a significant amount.

 

Bhattacharya said there is a very distinct possibility of a Repo rate action by the RBI as liquidity management is the key concern given the underlying targets, the monetary targets that RBI has set for itself. Liquidity is abundant as of now and there is a likelyhood of liquidity getting tighter within the coming few weeks and that would make the repo-rate, the binding rate.

 

Sachchidanand Shukla, Chief Economist at Enam Securities said,” Inflation is at a 44 month high and with the price hikes being implemented that will add about 56 bps directly to the Wholesale Price Index (WPI) and 20th June onwards or the third week onwards inflation will move up above 9% and it will remain around 9-10% for about a month or so. I do not see inflation coming down before August. Even if we assume that week on week these numbers do not rise because of the methodology and base. Till August we may not see any signs of softening in inflation rate but it would soften after that.”    

 

Shukla believes that inflation right now is due to a global phenomenon with more than 100 countries seeing rise in inflation. He said that in India less than 30% of the 448 items in the WPI have inflation of more than 5%. Post August, with the agriculture output at a record of 227 million and believing that the monsoons will be normal, 1/3rd of the incremental inflation will be taken care of. Thereafter we can see some easing but for the whole year, inflation will then end up at close to 6% on average, he added.     

 

 

Shukla said these numbers will keep putting pressure on the RBI as well as the government. But they will continue with their tried and tested policy of Cash Reserve Ratio (CRR) hikes. The RBI believes that CRR works best in moderating inflation without hurting growth he added. They may not touch policy rates. They have not raised the Repo rate therefore indicating that they are worried about cost funds and Gross Domestic Product (GDP) growth.

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