Inflation picks up in Feb but RBI seen cutting rates

NEW DELHI Thu Mar 14, 2013 6:56pm IST

1 of 5. Fruit vendors sit in front of a display of mangoes at a wholesale market in Mumbai March 14, 2013.

Credit: Reuters/Vivek Prakash

Related Topics

NEW DELHI (Reuters) - India's headline inflation picked up in February on higher fuel costs but another measure of price pressure cooled, reinforcing expectations that the RBI will deliver a rate cut next week.

The wholesale price index (WPI), the main inflation indicator, rose an annual 6.84 percent in February, higher than the 6.54 percent rise estimated by analysts. Wholesale prices rose 6.62 percent in January.

But non-food manufacturing inflation, which the RBI uses to gauge demand-driven price pressures slowed to 3.8 percent in February, the weakest pace since March 2010.

Rupa Rege Nitsure, chief economist at Bank of Baroda, said the inflation data showed a considerable slowdown in consumer demand, which should help keep inflation in check.

"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."

The Reserve Bank of India, which has faced intense pressure from industry and government to loosen monetary conditions to help arrest the worst economic slowdown in a decade, cut its key lending rate by 25 basis points to 7.75 percent in January after leaving rates on hold for nine months.

Graphic: Inflation, repo rates, output, click here

Also read, expert views on inflation data, click here

Hopes for a further cut at its policy review on March 19 have risen after economic growth slipped below 5 percent in the December quarter and Finance Minister P. Chidambaram pledged to rein in the fiscal deficit at 4.8 percent of gross domestic product in the year to end-March 2014.

Those expectations were further bolstered by Governor Duvvuri Subbarao's comments overnight that the 2013/14 budget unveiled last month will have a "softening impact" on price growth.

Bond traders read Subbarao's comments as an endorsement of the government's efforts to reduce its fiscal deficit, which he has previously said is a necessary condition to bring down interest rates, which are among the highest in major emerging economies.

Soon after the data, the benchmark 10-year bond yield fell 4 basis points to 7.86 percent on expectations that softer core inflation would give the central room to lower borrowing costs.

"Though the headline number is still high, the break-up (detail) 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," said Rahul Bajoria, regional economist at Barclays Capital.

HIGH FOOD PRICES

Fuel prices rose an annual 10.47 percent, faster than a 7.06 percent on-year rise in January. Manufacturing goods inflation dropped to 4.51 percent in February from 4.81 percent a month ago.

Food inflation also slowed down to 11.38 percent during the month from 11.88 percent in January. However, it stayed in double-digits for the third straight month, and has tempered expectations of any aggressive monetary easing.

Data on Tuesday showed that higher prices of food items pushed up consumer price inflation to 10.91 percent in February from 10.79 percent a month ago.

Slowing economic growth is equally a major worry for the Congress-led coalition government as it gears up for a general election due by May 2014.

Not only is the slowdown limiting employment opportunities for India's burgeoning population, it is also making it tougher for Prime Minister Manmohan Singh to fund his flagship welfare programmes.

India's GDP is on track to post its slowest gain in a decade at around 5 percent for the fiscal year that ends in March.

(Reporting by Rajesh Kumar Singh; Editing by Sanjeev Miglani)

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

  • Most Popular
  • Most Shared
People walk in the Wipro campus in Bangalore June 23, 2009. REUTERS/Punit Paranjpe/Files

Wipro Q4 net profit beats estimates, rises 29 percent

Wipro posted a 29 percent rise in its fourth-quarter net profit, beating expectations, helped by increased IT spending by its customers. For the quarter ended March 31, the company said it earned 22.27 billion rupees compared with 17.29 billion rupees a year earlier.  Full Article | Full Coverage 

REUTERS SHOWCASE

Literary Giant Dies

Literary Giant Dies

Nobel winner Garcia Marquez, master of magical realism, dies at 87.  Read 

Election 2014

Election 2014

India holds biggest day of voting with BJP gaining strength  Full Article | Full Coverage 

Insider Trading

Insider Trading

Ex-Goldman director Gupta starts prison term on June 17.  Full Article 

Market Eye

Market Eye

Sensex jumps 351 points, snaps 3-day losing streak  Full Article 

Expansion Plans

Expansion Plans

Reliance Industries, HPCL Mittal plan refinery expansions.  Full Article 

S&P on India

S&P on India

S&P: India's ratings to depend on next govt econ, fiscal policies.  Full Article 

Ambitious Aim

Ambitious Aim

In green car race, Toyota adds muscle with fuel-cell launch.  Full Article 

Deal Talk

Deal Talk

Piramal to buy 20 percent stake in Shriram Capital for $334 million.  Full Article 

Bond Market

Bond Market

A star abroad, RBI boss riles bond traders at home  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device.  Full Coverage