Experts comment on April inflation data

India's wholesale price index (WPI) rose an annual 8.66% in April, mostly on higher fuel and food prices, government data showed on Monday.

The figure was above the median forecast for an 8.43% rise in a Reuters poll and was lower than the annual rise of 9.04% in March.

Siddhartha Sanyal, chief India economist, Barclays Capital, Mumbai comments:

"The number is broadly in line with expectation and is not a massive jump. Manufacturing and fuel is still stubborn. What is worrisome is the large revision in the February inflation which suggests that there are latent inflationary pressures.

"We continue to hold on to our view of 25 basis points rate hike each in the next two policies. I don't expect any change in the stance as monetary policy is already factoring in such inflationary pressures."

Dariusz Kowalczyk, senior economist and strategist at Credit Agricole CIB in Hong Kong, comments:

"The decline still leaves it very high. As the RBI has just said that inflation will start falling from about-9% level after September and the absolute level remains near recent readings, there should not be much of a market reaction. Sticky inflation points to the need for more rate hikes and we expect two more increases this year. The data is modestly negative for Indian assets, including INR, bonds and equities."

Also read: India's growth environment is attractive despite inflation

Market reaction:

* The most-traded 7.80% 2021 bond yield immediately rose 3 basis points to 8.27% after higher than expected inflation data.

* The main share index extended losses to 0.85%

* The 5-year overnight indexed swap rates rose 4 basis points to 8.15% and 1-year was 3 basis points higher at 8.05% after the data, dealers said.

Background:

- The Reserve Bank of India has raised rates nine times since mid-March 2010 and economists expect it to raise rates by 25 basis points each at its policy reviews in June and July.

- India's domestically driven economy is expected to have expanded 8.6% in the fiscal year ended March, and the RBI has forecast growth to moderate to about 8% in the current fiscal year.

- Annual industrial output in March grew at a higher-than-expected pace of 7.3% on the back of revival in capital goods production, allaying fears of a slowdown in the econony, as of now.

- State-run refiners raised petrol prices by about 8.6%, or 5 rupees a litre from Sunday, a record hike that will fuel inflation in Asia's third-largest economy.

- A ministerial panel is likely raise this week prices of diesel, cooking gas and kerosene, which are controlled by the government, local newspapers reported on Sunday quoting the finance minister.