Inflation at 11.8%; experts see FY09 GDP at 7.2%

Indranil Pan, Chief Economist at Kotak Mahindra Bank said that today's inflation numbers are a positive surprise for the market in today's atmosphere. "We could see some lagged impact of the currency depreciation also coming in on inflation side because we are still seeing quite a healthy number on non-oil imports. The fiscal side being lose; there could be some residual worries on the inflation. The major issue today is that of liquidity and to a certain extent for the Reserve Bank of India, the issues of inflation could be on the backburner for the moment and liquidity becomes the priority."  

Saugata Bhattacharya, Economist, Axis Bank feels that the numbers are in line with the expectations given whatever we have been seeing in the global arena for the past two weeks or so. "We were pretty convinced that inflation would be on the downswing now and it is little lower than our expectations. RBI and the Finance Ministry had wind of these numbers before they took the measures over the past week."

Will RBI cut CRR or repo rate?

Pan is not looking at a repo rate cut immediately because there are certain worries in the currency market. "You are consistently seeing outflows and deleveraging at the global financial institutions so I am not sure whether the RBI would be looking at reducing the repo rate immediately but definitely they would be providing adequate liquidity in the market and ensure that the overnight rate stays at around the 9% level rather than the 22% and 20% levels that we have been seeing today and in the recent few days."            

What will be the GDP number for FY09?

Pan sees FY09 GDP scaling down. "We would be revising it down to 7.2% on the basis of industrial production numbers but also on the basis of the fact that given the developments in the global scenario certain segments within the services segment could face some problem. The agricultural production for the year is also looking slightly negative. Overall, we would be scaling down our GDP number to a 7.2% this year and maybe to around 6.8% in the year hence."

Bhattacharya also sees FY09 GDP at 7.2%. "It will be a bit higher in 2009-10 partly because of the base effect of the lower growth and partly because things will start picking up by the middle of 2009. We believe that things will begin to look brighter and 2009-10 growth estimates will be high."

Will we see single-digit inflation?

Bhattacharya sees a likelihood of single-digit inflation given the current situation, the amount of demand destruction globally. "A fair bit of the industrial inputs and oil for instance will probably reflect in our wholesale prices as well."

Inflation Internal's Snapshot