Inflation accelerates before Fed review; spurs RBI concerns

Wholesale inflation accelerated, supporting RBI’s decision to abandon its accommodative monetary stance before an expected increase in US interest rates


RBI said in a report that while effects of Modi’s demonetisation have mostly worn off, the cash squeeze hasn’t had much impact on core inflation, which strips out volatile food and fuel costs. Photo: Mint
RBI said in a report that while effects of Modi’s demonetisation have mostly worn off, the cash squeeze hasn’t had much impact on core inflation, which strips out volatile food and fuel costs. Photo: Mint

Mumbai: India’s wholesale inflation accelerated more than estimated, supporting the central bank’s decision to abandon its accommodative monetary stance before an expected increase in US interest rates.

The data risks spurring the Reserve Bank of India’s (RBI) concern on inflation, with the US Federal Reserve expected to tighten on Wednesday and the International Monetary Fund saying India must be ready to do the same if price pressures pick up. The RBI’s staff said in a report on Friday that while effects of Prime Minister Narendra Modi’s demonetisation have mostly worn off, the cash squeeze hasn’t had much impact on core inflation, which strips out volatile food and fuel costs.

RBI governor Urjit Patel last month changed the policy stance to neutral from accommodative—saying it gives him flexibility to move either way on rates. His next decision is due 6 April. Higher borrowing costs could make it tougher to boost investment: the number of new proposals sank to the lowest in a decade in the October-December quarter, according to the Centre for Monitoring Indian Economy. Bloomberg

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