UCO Bank chairman Arun Kaul, responding to inflation at 7.24 percent, on CNBC-TV18 explains that this indicates a softening in inflationary trends though the fall in manufacturing product is a cause for concern. Kaul adds that this has raised hopes of a CRR cut on December 18.
Below is an edited transcript of the reaction on CNBC-TV18
Q: How do you read this inflation rate of 7.24-percent which is indicative of a decline in the rate of inflation? What do you expect from the Reserve Bank of India now?
A: The rate of 7.24 percent is a pleasant surprise because the market expectation was close to 7.5 to 7.6 percent. Although the market did expect inflation to come down, this is certainly better than expected. We have seen the immediate reaction from the bond market; the yields have started coming down.
What is welcome is a softening in the trend. Although there is a bit of concern regarding the increase in primary and food articles and the rise in the consumer price index in November, it seems that the inflation trend is coming down.
Q: In your opinion, what could be the level of inflation in the coming months of December, January and March?
A: The data indicates a fall in manufacturing products and I think this trend will continue. We are a bit worried on the fuel and power sectors because global oil prices are still high side and needs to cool off a bit for further reduction in fuel inflation.
Concerns on primary and food articles I believe going forward will start coming down because of higher crop-harvests that will ease prices. Generally, after winter the food prices start coming down. In my view there should be a softening bias in inflation going forward.
Q: What do you expect from the Reserve Bank of India (RBI) on December 18?
A: The RBI might like to wait for little more time before it starts repo-rate cuts. The central bank would like the trend to clearly establish itself before forming an outlook.
On the liquidity front, there is a possibility that the RBI might give some benefit to the market by cutting cash reserve ratio (CRR) although there would be some pressure on the currency.