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Inflation rises 5 ticks; will RBI hike CRR rates?
Inflation for the week ended June 30 was at 4.27% as against 4.13% for the week ended June 23. The Network-18 Poll had estimated it at 4.12%. The inflation is week-on-week, up by 5 ticks; we have not seen such a kind of inflation rise for some time now.
Inflation for the week ended June 30 was at 4.27% as against 4.13% for the week ended June 23. The market had estimated it at 4.12%.
The inflation is week-on-week, up by 5 ticks; we have not seen such a kind of inflation rise for some time now. And that's why, despite having a benign base, the Y-o-Y inflation has shot up from 4.13% to 4.27%.
The rise is due to the increase in prices of food articles; the manufactured product prices are also up.
Clearly, the base-effect advantage will continue till October. But, the inflation is inching up, crude prices have gone up to USD 72-73, and that's not got passed down yet in the form of domestic fuel prices, interest rates have started coming down - according to some real-estate majors, real estate prices have gone up in anticipation that demand will pick up, now that the rates have peaked-off. So all this can mean is that the inflation numbers may look ugly. The only positive factor would be the benign base-effect.
It looks like as long as the base is benign, the Y-o-Y figure does not look ugly, as above 5%. The RBI will hold its horses, especially because it has the volatile rupee to tackle.
Clearly, these are certain red flags along the horizon.
How will the RBI respond?
Looking ahead, Abheek Baruah, Chief Economist, HDFC Bank said, "I was expecting some kind of liquidity draining action from the RBI, in any case; possibly in the form of a CRR hike. I think this kind of an uptake in inflation is strengthening the case for some monetary measure. So, I would put a fairly high probability on a CRR hike, by about 50 bps in the monetary policy. I don't think the central bank can allow such kind of liquidity to persist for too long."
Inflation
