Mumbai: India’s wholesale price inflation (WPI) could remain in double digits for the next nine months and peak at 15% by the end of 2008, HSBC said on @0 June.
“I think India is going to live with double-digit WPI inflation, probably CPI inflation in the not too distant future, for at least nine months,” Robert Prior-Wandesforde, chief Indian economist at HSBC in Singapore told Reuters.
HSBC expects the central bank to increase its repo rate, its main lending rate, by 50 basis points to 8.5% and cash reserve ratio (CRR) by 75 basis points in 2008.
“I think that’s the minimum we are going to get,” he said.
Last week, the central bank raised its repo rate by 25 basis points, the first increase in policy rates since March 2007, although it has been tightening cash availability through increases in CRR.
“Even if food prices do come off, it has only a 15% weighting in the whole index, it is not going to turn the whole thing around,” he said.
Besides tightening policy, Prior-Wandesforde also expected the central bank to push up the rupee to fight inflation. The government could also take more action, he said.
“I think the central bank will have to think much more seriously about what it does with the exchange rate, try to intervene to push that higher as well,” he said.
The government will also have to take more action to contain prices, said Prior-Wandesforde.
“I think they have to think more actively and they have to spend a little more money to achieve that, which in turn suggests the budget deficit could be a even bigger threat than we think already is,” he said.
The government expects to rein in fiscal deficit within 2.5% of gross domestic product in the 2008/09 fiscal year that began in April, lower than the previous year’s 3.1%.