PMEAC sees FY12 inflation at 6.5%, HDFC Bank pegs 7.2%

The Prime Minister's Economic Advisory Council (PMEAC) forecasts inflation at 6.5% for FY12. But, according to Abheek Barua of HDFC Bank, WPI inflation for March would be around 7-7.2%. In an interview to CNBC-TV18, he said, "We have been factoring in at least two more rate hikes of 25 basis points (bps) each. If things turn out to be worse than PMEAC's projections, there could be 75 bps hike (in total) too," he pointed out.

While Barua feels that the PMEAC has forecasted optimistic numbers for inflation and fiscal deficit, his views, however, don't match with that of the council. "The best case number for the fiscal deficit is likely to be around 5.3-5.4%, higher than the 4.7%," he said. Below is the edited transcript of Barua's interview. Also watch the accompanying video. Q: The inflation and fiscal deficit numbers from the panel look optimistic to some observers. What is your take on it? A: Both, inflation and fiscal deficit numbers, look a little optimistic. The industrial growth was projected at 7.1%. If the Reserve Bank of India (RBI) continues to be aggressive in monetary policy action, the numbers might be a little lower than 7.1%. Services growth projection was at 10% which is again a little optimistic. At this stage, I expect a sub-8% growth. On fiscal deficit, I would be far more pessimistic than their projection. The best case number is likely to be around 5.3-5.4%, which is significantly higher than the 4.7%. Q: PMEAC has also been very optimistic on inflation. They are looking at a March-end number of 6.5%, where the RBI had put it at 7%. What is your take on it? Therefore, how many more rate hikes do you foresee? A: For March, we expect the inflation number to be around 7%. We have been factoring in at least two more rate hikes of 25 bps each. If things turn out to be worse than PMEAC's projections, there could even be 75 bps hike. With a combination of base effect and this aggression, the WPI inflation for March would be around 7-7.2%.