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INSTANT VIEW 5-India inflation accelerates to 6.95 pct in Feb
March 14, 2012 / 6:22 AM / 5 years ago

INSTANT VIEW 5-India inflation accelerates to 6.95 pct in Feb

(Adds key points, comments)	
    NEW DELHI, March 14 (Reuters) - India's headline
inflation picked up for the first time in five months on higher
food prices, giving the central bank a reason to hold off on a
much-awaited interest rate cut when it reviews its policy on
Thursday. 	
    The wholesale price index, India's main gauge of
inflation, edged up 6.95 percent in February from a year
earlier. It was higher than the 6.79 percent average forecast in
a Reuters poll, after a provisional rise of 6.55 percent in
January.  	
                 	
    KEY POINTS:	
    ----------------------------------------------------------- 	
    SUB INDEX        (WEIGHTING)  February  January  Pct change 	
    PRIMARY ARTICLES       20.12   201.5    199.7     0.90  	
    Food Articles          14.34   192.3    191.4     0.47	
    FUEL AND POWER         14.91   173.2    172.8     0.23 	
    MANUFACTURED PRODUCTS  64.97   141.7    141.2     0.35	
    ------------------------------------------------------------
 	
    NOTE: Articles in CAPITALS are sub-indexes. Articles in  	
lower case are specific categories within the sub-indexes.  	
    ------------------------------------------------------------	
    	
    COMMENTARY:	
    	
    SHUBHADA RAO, CHIEF ECONOMIST, YES BANK, MUMBAI	
    "The key trend that needs to get captured is on core
inflation, which is at a 15-month low, and that is something
that should go as a positive for monetary policy.	
    "We still believe the RBI could look at a repo rate cut of
25 basis points tomorrow."	
	
    ASHUTOSH DATAR, ECONOMIST, IIFL, MUMBAI	
    "Momentum of non-food manufacturing inflation, or core
inflation, is not easing month-on-month as was expected. Growth
is also not collapsing as shown by the January data and global
crude oil prices are rising. All this means that a rate cut is
ruled out at Thursday's policy meeting.	
    "Uptick in crude oil prices will definitely have an impact
on RBI policy since the issue can be tackled only by raising
retail prices or allowing fiscal deficit to go higher.	
    "Also the central bank has little room to prop up the rupee
as inflows are not rushing into India. Therefore, the RBI will
prefer to wait for one more month before moving on rates."	
	
    ANUBHUTI SAHAY, ECONOMIST, STANDARD CHARTERED BANK, MUMBAI  	
    "While a higher print in February was expected as the base
effect was less favourable this month when compared to January,
the number has still surprised on the upside. Price pressures in
both food articles and non-food articles were higher than our
expectation and along with fuel prices (once administered fuel
products prices are revised) can pose further upward pressure on
the headline inflation.	
    "On the positive side, a fall in core inflation should
provide comfort to the RBI. However, with the headline inflation
still at near 7 percent, probability of rate cut tomorrow has
reduced further. We expect no change in the repo rate when RBI
meets for its mid-term policy meeting."	
	
    SUJAN HAZRA, CHIEF ECONOMIST, ANAND RATHI SECURITIES, MUMBAI	
    "It is higher than our expectation. But if you see the
underlying numbers, it's not so much from the manufacturing
side, which is the relevant number as far as the policy decision
is concerned.	
    "Our sense is that non-food manufacturing inflation will
maintain the downward trajectory at least till June, which will
enable the RBI to start cutting rates."	
    	
    UPASNA BHARDWAJ, ECONOMIST, ING VYSYA, MUMBAI	
    "The high uncertainty surrounding the price pressures is
likely to keep the RBI on a pause mode in tomorrow's meeting.
However, an easing core inflation figures may provide some
comfort." 	
    	
    ABHEEK BARUA, CHIEF ECONOMIST, HDFC BANK, NEW DELHI	
    "I think the big risk going forward for inflation will be
driven by the revision in the domestic fuel prices, and we do
expect inflation to sustain around 7 percent until March. The
inflation rate may bottom out to around 5.7-6.0 percent in
August-September, and then inch back to around 7 percent.	
    "The broad balance is in favour of a rate cut, but I would
think the Reserve Bank of India would wait until it gets a firm
fix on the contours of the budget."	
	
    INDRANIL PAN, CHIEF ECONOMIST, KOTAK MAHINDRA BANK, MUMBAI	
    "With inflation at near 7 percent and with IIP (index of
industrial production) growth on a much better platform we do
not expect the RBI to cut rates immediately in March. We retain
our view for the first cut of 25 basis points in April.	
    "Imported inflation from oil may not be a concern unless
they pass on the higher prices to the end users. But to a
certain extent it seems that the RBI is keen to contain the
rupee trends to contain imported inflation.	
    "For food inflation, there might not be too much of a
softening trend. Only reason why food inflation is lower now is
due to the vegetables segment. The worry on inflation could be
magnified if the fiscal compression does not happen, and the
feeling is that there might not be much of a fiscal compression
anyways."
 	
    RUPA REGE NITSURE, CHIEF ECONOMIST, BANK OF BARODA, MUMBAI	
    "This figure is still a repressed number because the
complete pass-through of global oil prices has not happened. If
you take just the direct impact of global oil prices at current
levels, then the headline inflation number could at least be
90-100 basis points higher. 	
    "The Reserve Bank of India would start lowering interest
rates in the next fiscal year 2012/13, but given the fiscal
slippage of the government the pace would be gradual. I don't
expect the RBI to cut interest rates before the annual monetary
policy statement in April."	
    	
    DARIUSZ KOWALCZYK, SENIOR ECONOMIST AND STRATEGIST, CREDIT
AGRICOLE CIB, HONG KONG 	
    "The sharper-than-expected rise is negative for the INR and
should push INR OIS rates up, especially at the short end, as it
almost guarantees no rate cut this week. We still see a cut in
Q2."
    	
    MARKET REACTION  	
    * The benchmark 10-year 8.79 percent, 2021 bond
 was steady at 8.35 percent immediately after the
data.	
    * The benchmark five-year swap rate and the
one year swap rates were unchanged at 7.53
percent and 8.10 percent, respectively.   	
    * The partially convertible rupee was unmoved at
49.9 per dollar. 	
	
    LINKS:  	
    To see the full press release click on: here	
    	
    BACKGROUND:	
    - The Reserve Bank of India is expected to hold interest
rates steady at its policy review on Thursday ahead of the
federal budget, a Reuters poll showed on Monday. 
 	
    - India's factory output grew at its fastest in seven months
in January, powered by a surge in manufacturing including
consumer non-durables, and is likely to give some space to the
RBI to defer its policy easing. 	
    - Finance Minister Pranab Mukherjee is expected to announce
measures, including increase in tax rates to trim federal fiscal
gap, when he presents the annual federal budget on Friday.	
    - The RBI last week slashed the cash reserve ratio (CRR)
, the proportion of deposits that banks must keep
with the central bank, by 75 basis points. 	
    - Car sales in India rose an annual 13.1 percent in February
as buyers rushed to showrooms ahead of a budget seen raising the
cost of vehicles. 	
    - India's services sector lost momentum in February and
firms shed workers for the first time in three months, a
business survey showed. 	
    - India's economic growth slowed to 6.1 percent in the three
months to December. The government has forecast the economic
growth in the fiscal year ending March 31 to dip below 7 percent
for the first time in three years.
 (Reporting by India Treasury Team; Editing by Ranjit
Gangadharan)

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