March 14, 2012 / 4:57 AM / 5 years ago

Inflation may have picked up slightly in Feb: Reuters Poll

A vendor arranges onions at a wholesale vegetable market in Kolkata January 19, 2012.Rupak De Chowdhuri/Files

BANGALORE (Reuters) - India's headline inflation likely picked up slightly in February from January's 26-month low as higher global oil prices fed into the country's import costs, a Reuters poll showed.

Economists expect headline inflation of 6.79 percent in February from a year earlier, faster than January's 6.55 percent.

"There is a likelihood of a higher number, primarily on account of oil prices. I would say import inflation would play up in the numbers," said Upasna Bhardwaj, economist at ING Vysya Bank.

India imports two-thirds of its crude oil requirements.

Rising prices have long been one of the main hurdles to growth in India and one of the most intractable problems for policymakers. Inflation stayed above 9 percent for a year despite numerous rate hikes by the Reserve Bank of India (RBI) to tame it.

A rise in food price inflation may also play a part in pushing up the headline number, according to some economists.

Four straight months of easing inflation has stoked expectations for monetary policy loosening by the central bank.

Forecasts in a Reuters poll of 30 economists ranged from 6.30 percent to 7.02 percent, and even the highest forecast in the poll was well below the two-year average of 9.5 percent, suggesting the trend is for slower inflation.

"Our projection suggests that the downward trajectory of inflation will continue at least until September 2012 when it should bottom out somewhere close to the 5.5 level," said Sujan Hajra, chief economist at Anand Rathi Securities.

"A benign inflation outlook coupled with very soft growth performance...will give RBI the ideal window to cut the monetary policy rates."

India grew at a comparatively meagre rate of 6.1 percent in the quarter to December, its weakest annual pace in almost three years.

The central bank has signaled a shift in its monetary policy stance to revving growth instead of battling inflation but has so far left its key interest rate on hold as it waits for clear signs that inflation is under control.

The RBI surprised markets by slashing its cash reserve ratio - the share of deposits that other banks must hold with it - by 75 basis points on Friday to ease tight monetary conditions and improve liquidity.

The move came less than a week before its next policy meeting on March 15, and was seen by some market watchers as raising the odds of an imminent interest rate cut.

In addition, the central bank has also asked the government to cut its fiscal deficit to help rein in inflation as it prepares to ease monetary policy which will bring the annual budget into focus.

Finance Minister Pranab Mukherjee will present the annual budget on Friday and is expected to address the worsening deficit from slowing economic growth and the rising subsidies for fuel and food.

The government has hinted it might raise taxes on a number of manufactured items and expand the tax net in its budget to rein in its deficits.

A surprisingly strong jump in India's industrial output, which grew at its fastest pace in seven months in January, also added to expectations that the RBI is likely to wait until April before cutting interest rates.

Reporting by Deepti Govind; Polling by Snehashish Das; Editing by Jonathan Cable

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