Expert views: Inflation accelerates to 6.84 percent in Feb

MUMBAI Thu Mar 14, 2013 12:28pm IST

A fruit seller waits for customers at his stall at a wholesale market in Mumbai February 14, 2013. REUTERS/Vivek Prakash/Files

A fruit seller waits for customers at his stall at a wholesale market in Mumbai February 14, 2013.

Credit: Reuters/Vivek Prakash/Files

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MUMBAI (Reuters) - India's wholesale price index (WPI) rose a faster-than-expected 6.84 percent in February, clouding the policy outlook ahead of a central bank meeting next week.

Analysts polled by Reuters had expected wholesale prices, the main inflation gauge, to rise an annual 6.54 percent, slower than an annual rise of 6.62 percent in January.

The reading for December was revised up to 7.31 percent from 7.18 percent, government data also showed on Thursday.

COMMENTARY

ROBERT PRIOR-WANDESFORDE, DIRECTOR, ASIAN ECONOMICS RESEARCH, CREDIT SUISSE, SINGAPORE

"The core inflation surprisingly came down to 3.8 percent, lowest since March 2010. That will give some comfort to the Reserve Bank of India to cut rates, though it would have liked the headline number to come down further. But it would be strange not to cut interest rates on the basis of LPG and onion prices going up."

ABHEEK BARUA, CHIEF ECONOMIST, HDFC BANK, NEW DELHI

"The increase in WPI over the anticipated level seems to be on the back of pricing in of increase in bulk diesel prices. That perhaps partly explains the gap between consensus expectations and the final print.

"I have held the view that the RBI will go in for a 25 basis points cut in the repo rate based on a number of factors. One thing is the high and rising CPI, so RBI cannot go for a sharp rate cut and give aggressive guidance. On the other hand, there have been tangible improvements in the fiscal situation. So given these factors on balance, there would be a rate cut on Tuesday and perhaps one more in May. And, these rate cuts would be justified on balance of risk, and today's data does not substantially alter it.

"We are looking at inflation bottoming out in September around 6.5 percent."

RUPA REGE NITSURE, CHIEF ECONOMIST, BANK OF BARODA, MUMBAI

"The core inflation number has fallen below 4 percent and it shows how significantly the demand deficit has grown in the manufacturing sector. And that is why despite elevated cost pressures, companies are unable to pass on these pressures to consumers.

"Today's inflation data combined with continuous weakness in the real economic activities, in my opinion, would trigger the RBI to cut rates by at least 25 basis points on Tuesday."

(Also read: Inflation gives RBI room to cut rates: PM adviser, click here)

RAHUL BAJORIA, REGIONAL ECONOMIST, BARCLAYS CAPITAL, SINGAPORE

"Given that non-food manufacturing inflation is pretty weak, that will provide some room for the inflation print to stay in a range going ahead. Also, it is good to see that they have included the unsubsidised version of LPG (cooking gas) in the fuel index which has pushed up the fuel inflation.

"Though the headline number is still high, the break-up shows that inflation will continue to ease going ahead and along with the government's fiscal consolidation efforts, there is even more reason to expect RBI to cut rates in March and for some more time going ahead."

JYOTI NARASIMHAN, SENIOR PRINCIPAL ECONOMIST, IHS GLOBAL INSIGHT, BANGALORE

"The uptick in inflation is disappointing. But we continue to expect the RBI to cut the repo by an additional 25 basis points next week, despite the wide current account deficit and inflation being above the RBI's comfort zone. The recent budget for FY2013/14 also struck the right note between fiscal consolidation and inevitable spending increases in a pre-election year...

"Nonetheless, the RBI will remain cautious and focused on inflation for the present, even while acknowledging weak investment conditions."

INDRANIL PAN, CHIEF ECONOMIST, KOTAK MAHINDRA BANK, MUMBAI

"We are looking at a 25 basis point reduction in the repo rate on Tuesday. The point that I am clearly trying to make is that unless the Reserve Bank had a trajectory of cuts in mind, it would not have done that 25 basis point cut in January. If it does not have a trajectory, the importance of that 25 basis point easing will be lost. Apart from the 25 basis point reduction on March 19, I think there will be another 25 basis point cut in 2013."

MAHENDRA JAJOO, HEAD OF FIXED INCOME, PRAMERICA MUTUAL FUND, MUMBAI

"The core inflation is down and there are a number of supporting statements from the central bank. I expect the bond market to remain supported on this. I am expecting a 25 basis points cut both in the repo rate and cash reserve ratio."

ANJALI VERMA, ECONOMIST AT PHILLIPCAPITAL, MUMBAI

"The core inflation at 3.8 percent is comfortable. I expect the RBI to cut rates by 25 basis points in the policy because growth is low at 4.5 percent, fiscal consolidation is ahead of expectations and core inflation is falling substantially."

MARKET REACTION

* The benchmark 10-year bond yield dropped as much as 5 basis points as core inflation dropped more than expected. Yields rose initially as the headline figure was above expectations.

* The rupee trimmed losses to trade at 54.36/37 per dollar from 54.47 before the data.

* The Sensex extended gains to trade up 0.8 percent from being flat beforehand.

* The 1-year OIS and the 5-year rate were both down 2 basis points each at 7.56 percent and 7.20 percent respectively.

MARKET REACTION

* The benchmark 10-year bond yield dropped as much as 5 basis points as core inflation dropped more than expected. Yields rose initially as the headline figure was above expectations.

* The rupee trimmed losses to trade at 54.36/37 per dollar from 54.47 before the data.

* The Sensex extended gains to trade up 0.6 percent from being flat beforehand.

* The 1-year OIS and the 5-year rate were both down 2 basis points each at 7.56 percent and 7.20 percent respectively.

BACKGROUND

- As inflation pressures remain the biggest concern for the central bank to cut interest rates, the latest data will set the tone for the monetary policy review on March 19.

- A majority of economists expect the Reserve Bank of India to lower the main policy rate by 25 basis points to 7.50 percent on Tuesday, a Reuters poll released this week showed.

- The February annual consumer price inflation accelerated to 10.91 percent despite overall weakness in the economy, reflecting retail price pressures.

- Last week Reserve Bank of India Governor Duvvuri Subbarao rejected the notion that high inflation is the "new normal," noting that many of the supply-driven causes of Indian inflation can be corrected by appropriate policies.

- Although industrial output expanded for the first time in three months in January, there were pockets of weakness that underscored the challenges facing the economy as it struggles to motor on from a sharp slowdown. While production of consumer goods recovered, posting an annual growth of 2.8 percent, capital goods output -- a key investment indicator -- fell an annual 1.8 percent. [ID:nL3N0C4125] (Reporting by Treasury and Markets teams; Editing by Ranjit Gangadharan)

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