Inflation Rates on the Decline: RBI to Wait Before Announcing Rate Cut
Reserve Bank of India Governor Raghuram Rajan said on Monday inflation in Asia’s third-largest economy was still high and there was no point in cutting interest rates to see inflation pick up again. Wholesale Price Index (WPI) for the month of August shrunk to a five-year low of 3.74% versus 5.19% in July. This is much below an ET Now poll of 4.4%. The WPI for June has been revised to 5.6% versus 5.43% earlier.
What do the numbers say?
The primary articles inflation dipped to 3.89% in August versus 6.78% in July. The manufactured products inflation came in at 3.45% versus 3.67% in July. The food price index dipped substantially to 5.15% versus 8.43% in July. The fuel & power inflation was reported at 4.54% versus 7.40% in July. While the news was greeted with cheer, most analysts are of the opinion that the Reserve Bank of India's (RBI) tough stand on inflation will continue, since it is the Consumer Price Index (CPI) that the central bank tracks. CPI inflation slowed to 7.8 per cent in August from nearly 8 per cent in the previous month. Consumer food inflation went up 9.42 per cent from 9.36 per cent in the previous month but with the monsoon improving dramatically in September, a further spike is unlikely. Declining crude and vegetables prices will provide further relief with a cut in diesel prices on the cards. However, most experts still expect the RBI to hold interest rates when it reviews monetary policy on September 30. Retail inflation is still close to RBI's March 2015 target of 8 per cent.
The central bank wants to bring down interest rates when it is “feasible”, Rajan told a banking conference.Retail inflation, which the central bank tracks for setting lending rates, edged down marginally to 7.8 percent in August from 7.96 percent a month earlier, helped by slower annual rises in prices of fuel and clothes.
Inflation and IIP data show economic recovery still ‘uneven’
The Reserve Bank of India Governor Raghuram Rajan said India’s macroeconomic indicators are improving and inflation has been coming down consistent with the central bank’s forecast, but Asia’s third-largest economy needs investment growth to pick up.Rajan, however, said Friday’s industrial output and inflation data suggested that recovery was “uneven.”
Output from mines, utilities and factories grew by a much slower-than-expected 0.5 percent year-on-year, government data showed on Friday, down from June’s revised 3.9 percent rise.Retail inflation, which the central bank tracks for setting lending rates, edged down marginally to 7.8 percent in August from 7.96 percent a month earlier.Rajan said it’s time the government start to de-regulate diesel prices as global crude oil prices are falling.
Will he, won’t he? Ask Uncle Sam for the Answer
On recent bank-related scandals, the central bank governor called for better internal evaluation of lending process and said banking must become more engaged and informed. "We do not expect RBI to change its stance in the upcoming credit policy announcement later this month and thereby the repo rate is likely to remain unchanged," Care Ratings said in a statement last week. The possibility of a rise in interest rates in the US could also keep pressure on the central bank to maintain status quo.