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Feb 14, 2013, 02.18 PM IST | Source: CNBC-TV18

Don't see further decline in core inflation: HSBC Global

Leif Eskesen of HSBC Global Research, feels that as far as core inflation is concerned, we have reached the bottom for now. And we could see small uptick on the back of increase in food inflation that we saw over the past few months.

Leif Eskesen

Chief Economist, HSBC Group

More about the Expert...

Leif Eskesen of HSBC Global Research, feels that core inflation has reached the bottom now. However, he also thinks that there could be small uptick on the back of increase in food inflation that we saw over the past few months.

"Eventually, it will be a bit spill over from the gradual uptick that we will see in diesel prices. I don't see a further decline in core inflation," he said in an interview to CNBC-TV18.

Below is the edited transcript of his interview to CNBC-TV18.

Q: What do you expect to see on the inflation number and the core performance?

A: We expect inflation to slightly decline to 7.1 percent. I think food inflation will hold up relatively well. Also, core inflation will stub its decline and may take off a bit. So overall, it will be a relatively flat development on the inflation side.

Still, we can see more structural inflation in the economy because this slowdown has been more supply-led effectively, which is leaving cost pressures more baked in the inflation numbers. So, we expect flat numbers both at present and also in March.  

Q: Any chance that the core inflation number might slip below 4 percent because that would optically be good even for the Reserve Bank of India (RBI)?

A: I don't think so. I think that as far as core inflation is concerned, we have reached the bottom for now. We could see small uptick on the back of increase in food inflation that we saw over the past few months. Eventually, it will be a bit spill over from the gradual uptick that we will see in diesel prices. I don't see a further decline in core inflation.

Q: Do you think this will be important number for the RBI or do you think the Budget will be far more important in shaping what it does in March more than this inflation reading and the IIP number which went by?

A: The RBI has rightly pointed out that there will be conditionality on further cuts. The upcoming Budget should imply fiscal consolidation. If you look at the overall strategy in India for policy, the overall macro economic policy stands or the combine fiscal and monetary policy has to be tight still.

I think the RBI would like to see how the early parts of Budget session runs in terms of structural reform agenda, progress and subsequent inflation readings before they decide to go for another 25 bps rate in March or will they wait a little bit further to get more clarity on the inflation outlook.

Q: What is your own expectation, do you expect to see a rate cut post the details they see in the Budget or you think they will hold their fire for a bit?

A: Future rate cuts not only hinge on the Budget but on how the trade balance continues to involve, future inflation numbers pan out and other structural measures.  

Q: As an economist how much weight are you putting on the Budget event for India and how you decide to plot the macro data from there on?

A: It is important from a number perspective and further sustaining the lift in sentiments about India. Now, the reform agenda is on, and there is traction on delivering a Budget that implies consolidation and is based on credible assumption that will further help to lift sentiment. It is also important to address growth in terms of crowding in the private sector. So it also has direct macro economic implications so it is very important.

 

 

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