See Nov CPI at 10.78%; RBI may hike repo by 25 bps: Experts

According to a CNBC-TV18 poll, the November consumer price index is widely expected to be in double digits, at around 10 percent. However, A Prasanna, Chief Economist, ICICI Securities Primary Dealership, expects it to worsen to a peak of 10.78 percent or thereabout.

Also Read: High inflation in Nov set to keep pressure on RBI
The good news is, from hereon he expects it to come off. Considering vegetable prices are already correcting. The CPI is likely to remain in double digits for another month and see a gradual decline thereafter. "So by March we are looking at somewhere around 9 percent on headline CPI," he told CNBC-TV18.
Despite the hope that inflation may trend lower from next year, Mohan Shenoi, President - Group Treasury & Global Markets, Kotak Mahindra Bank is of the opinion that the urgency to contain inflation at the political level has made Reserve Bank's job a lot easier. The RBI will announce its monetray policy next week and Shenoi expects it to hike repo rate by 25 basis points to ward off CPI jitters and guard against taper-related outflows. Below is the verbatim transcript of A Prasanna & Mohan Shenoi's interview on CNBC-TV18 Q: Our poll has thrown up 10.1 percent as the average expectation, similar to what was there in October. I understand you are at the higher end of the range? Prasanna: Our own estimate is 10.78 percent. Q: What is your expectation of the inflation trajectory as well going ahead from here, do we stay with double digits for a goodish bit? Prasanna: We think 10.78 percent could be the peak and then from thereon it should come off, already anecdotally we are hearing that vegetable prices for example which is a significant reason behind the run up in inflation in recent months, it has started correcting. So 10.78 percent could be the peak and probably for one month after that it could still stay in double digits and then from there on it could come off. So by March we are looking at somewhere around 9 percent on headline consumer price index (CPI). Q: Just wanted one word on the export figure that we got from the trade data, the government said that exports would recover since this time around there was a shutdown of some of the petroleum refineries which affected some of the outbound shipments, what is your view on what the export number could look like for the next couple of months? Prasanna: It was a bit of a surprise that this month we saw a lower number in monthly terms and of course if you kind of put that what you said along with fall in oil imports also, it fits together. So our own sense is that probably we will again go back to USD 27-28 billion kind of a number and of course into Q4 seasonally anyway it is a strong quarter for exports. So we would be looking a bit higher by March. Q: If this print is above the Reserve Bank of India’s (RBI) comfort zone, which it is expected to be then what is your estimate of what the RBI may do at the policy next week? Shenoi: Whatever maybe the print of CPI this time, my view is look the political class has got a message from recent state election results that electorate is completely unhappy about the persistently high levels of inflation. Therefore there is now a political commitment to tackle inflation on an urgent basis. That makes the job of RBI much easier. So whether CPI comes down a bit or goes up a bit in today’s announcement, it doesn’t matter. I think there is an urgency about containing inflation at the political level and therefore also at the Central Bank level. That is number one.
Secondly, as soon as the Fed is convinced that the US economy is firmly on growth path, they will taper the bond buying programme and now to be ready for that many of the emerging markets have increased interest rates - Indonesia, Turkey to give some example. So India too will have to keep its interest rates high as an insurance against taper related outflows. So according to me, on December 18, in the RBI’s policy, we will see 25 basis points hike, we will see 8 percent as the repo and 9 percent as the marginal standing facility (MSF) rate. Q: What is your estimate of the trajectory if there is a rate hike, is it partly factored in or does it go to whatever 8.95 or closer to 9 as Prasanna is saying? Shenoi: Let me give a slightly different take on this. The problem with the bond market today is that there is no clarity on monetary policy framework. The significantly reduced volumes in the bond market points to the fact that traders are hesitant to take positions because there is no clarity on the monetary policy framework. What has happened is that the existing monetary policy framework has been significantly changed post July 15 and the new monetary policy framework is yet to be announced. I think that is confusing the market. Taking all this into account, my own feeling is that broadly the range for 10-year is anywhere between 8.60 percent and 9 percent or 8.50 percent and 9 percent.