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Business News/ Opinion / Blogs/  Rate cuts may not happen without inflationary pressures easing
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Rate cuts may not happen without inflationary pressures easing

While many say that there is a possibility of rate cuts in the second half of the fiscal year, this may not happen

A file photo of RBI governor Raghuram Rajan. Photo: Ramesh Pathania/MintPremium
A file photo of RBI governor Raghuram Rajan. Photo: Ramesh Pathania/Mint

The March Wholesale Price Index (WPI) inflation at 5.7% grew at the fastest pace since December and above the consensus estimate of 5.3%. The so-called core WPI inflation, or non-food, non-oil, manufacturing inflation, too, rose from 3.15% in February to 3.5% in March. The January WPI inflation has also been revised upwards by 12 basis points to 5.17% and core inflation by 19 basis points. One basis point is one-hundredth of a percentage point.

Virtually all components of inflation—food articles, fuel and manufactured goods—have shown faster price growth. Inflation of primary articles rose 7.7% in March against 6.3% in February. Food prices rose 9.9%, fuel and power prices rose 11.2% and the price of manufactured goods rose 3.2% in March, its fastest pace in 11 months. Higher tobacco and base metal prices propped up core inflation, the highest since March 2013.

Even though the Reserve Bank of India (RBI) has started focusing on only retail inflation, or the Consumer Price Index (CPI), higher WPI in March is a surprise and particularly the rise in core inflation will be keenly watched by the banking regulator. Retail inflation, which dropped 8.10% in February, its lowest since January 2012, is expected to fall further in the coming months because of high base effect.

While many say that a new government at the Centre may influence RBI to change its monetary stance from hawkish to accommodative and that there is a possibility of rate cuts in the second half of the fiscal year, these may not happen without inflationary pressures easing.

Although RBI governor Raghuram Rajan may not hike rates, particularly after a 1.9% contraction in factory output in February on account of a muted domestic demand and weak exports, no rate cut is foreseeable in the near-term either.

Banker’s Trust Realtime is a frequent blog by Tamal Bandyopadhyay, who writes a popular weekly column Banker’s Trust.

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Published: 15 Apr 2014, 04:38 PM IST
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