See double digit inflation in March: Experts

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See double digit inflation in March: Experts

India's wholesale price index (WPI) rose 9.89% in February from a year earlier, driven by firm food prices, government data showed on Monday.

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Excerpts from Markets Midday on CNBC-TV18 Watch the full show » RELATED NEWS Inflation nears 10%; rate hike priced in Food prices push Feb WPI inflation to 9.89% YoY Kotak Mahindra BSE | NSE 10/02/12 Are Mutual Funds betting on Kotak Mahindra?

India's wholesale price index (WPI) rose 9.89% in February from a year earlier, driven by firm food prices, government data showed on Monday.

The food articles index rose an annual 17.79% in February, while, the manufacturing products index in the WPI rose an annual 7.42% in the same month.

In an interview with CNBC-TV18, Indranil Pan, Chief Economist at Kotak Mahindra Bank and Pronab Sen, The Chief Strategist of India, spoke about their outlook on inflation numbers.

Below is a verbatim transcript of an exclusive interview with Indranil Pan and Pronab Sen on CNBC-TV18. Also watch the accompanying video.

Q: What would you expect from the RBI when it seen 9.9% in February?

Pan: We were expecting above 10% for this month itself. So 9.9% is a bit of positive surprise of us in that sense of the term. The RBI already has factored in these higher inflation numbers. According to me, these should not be moving before the April 20. On April 20, we are expecting about 25- 50 basis points increase in the reverse repo rate. Further increases in the CRR would be decided possibly more closer to the policy having looked at the liquidity conditions at that point in time.

Q: What would your high in terms of inflation be in that case? The RBI has been maintaining that it will peak off in March because you are getting a base effect from April but this substantial jump in manufacturing inflation that we are seeing in February, would it mean that this double-digit inflation could linger for a bit?

Pan: We are expecting about 10.3-10.5% in March. We have the positive base effect from the last year from then on. The primary article prices are coming down and gradually we would also enter into the Rabi harvesting season. For the next month April, we actually have 9.8% inflation as of now. Going forward, if we see steady currency or a slightly further appreciation in the currency, we can also expect to see some tapering off on the manufactured inflation also. The sugar prices have also started to come down which is part of the manufactured food prices.

Q: One was expecting that that would keep the manufacturing index at bay in the current month as well but that has not happened just yet? What do you expect in terms of total reserve bank action April and June put together at that matter for 2010?

Pan: For the next financial year, we are looking at a more normalization of the monetary policy rather than any big attempt of tightening up monetary policy. The concern still is on the consumer non-durable which has shown a negative 3% growth even while the overall IIP numbers have been extremely robust. Hence, there could be some worries about the growth being broad based. The expectations being that the inflation would peak in March and then tend to taper off. The RBI might not be too aggressive in terms of monetary policy tightening for 2010.

Overall, we are expecting about 125-150 basis increase on reverse repo rate and bring the reverse repo rate closer to 4.50%, but ensuring that we continue to operate at the lower end of the interest rate corridor rather than at the upper end.