Diesel price hike: Bold move; UPA may pay political price
Experts hail diesel move, bet on RBI rate cut on Monday

Economy Sep 14, 2012

Inflation rate likely edged up in August

By Firstbiz Staff

India's inflation, data to be released later today, is unlikely to have seen any let-up in August, with economists' estimates in a Reuters poll ranging between 6.75 percent and 7.30 percent.

The median of the 32 estimates is 6.95 percent. This is the only key data to be released ahead of the Reserve Bank of India's policy review on 17 Sept.

Reuters

RBI Governor D Subbarao has a tougher situation this time round. Time and again he has reiterated that growth will have to be sacrificed to contain inflation and exhorted the government to initiate measures to resolve the fiscal policy issues, before cutting interest rates further.

On its part, the government raised the diesel prices by Rs 5 and capped the subsidised sale of LPD cylinders. The move is aimed at finding a middle path in its veiled tiff with the central bank.

While this could have come as a relief for the central bank, the US central bank unleashing its QE3 is likely to be a threat to the spiralling inflation. Adding to the worries is the price rise that is likely to come with the diesel price rise.

According to Subbarao , the non-food inflation, or core inflation, is key to the RBI's policy and has to be remain below 5 percent.

ICICI Securities has estimated the core inflation at 5.2 percent for August, slightly lower than the July print of 5.44 percent.

"In a scenario where WPI inflation is expected to hover around 7% and core inflation likely to again nudge above 5%, we reiterate our view that it is highly unlikely that the RBI will go for sharp rate cuts in the forthcoming monetary policy reviews," it said in a note.

IIFL expects inflation to be sustain above 7 percent for the full year.

"Given the deficiency in the monsoon and higher commodity prices ( esp if Qe3 comes) inflation is likely to be extremely sticky , which is unlikely to leave any room for the RBI to cut rates aggressively," IIFL said in research report recently.

Read the full Reuters poll here.

by Firstbiz Staff

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