With Wholesale Price Index (WPI) for the month of August rising to 6.1%, the fastest pace for six months, analysts are of the opinion that the monetary policy call for the new Reserve Bank of India (RBI) governor Raghuram Rajan will get tougher.
Weighed down by concerns of a volatile and depreciating rupee, persistently high inflation and a huge current account deficit, Rajan is unlikely to reduce key rates in his September 20 monetary policy review.
Sujan Hajra, Chief economist at Anand Rathi Securities is of the opinion that the RBI won't act on rates in this meeting. "The WPI inflation is slightly more than the 5.5 percent we were expecting mainly due to the pressures from fuel and primary subgroup," Hajra said.
"I think the RBI won't act on rates in this meeting despite the higher-than-expected industrial output. However, I think it will unwind some of its cash tightening steps," Hajra added.
A Prasanna, Economist at ICICI Securities said, "Obviously this leaves RBI in a difficult situation because there is evidence that weak demand is having an effect on pricing power but still overall inflation is quite high on the retail side also. This means inflation expectation will continue to rule high."
"So the issue is current overnight rate at 10.25 per cent is too high but also returning to an overnight rate of 7.25 per cent may not be an option for the RBI. It is a challenging task for the RBI and communicate it to the market," he added.
"Developments in the currency market suggest that RBI should be in a position to start reversing its tightening measures, however, they have to be careful as market could interpret it as tolerating higher inflation," he opined.
Commenting on the inflation data, Deven Choksey, MD at KR Choksey Securities said, "Core inflation has fallen but food inflation is 18.18% and that is a problem. Market is interested in knowing that whether rates would come down, but I think it will be a courageous call."
"I am more confident now that RBI would be able to take care of situation but expecting a CRR cut is better," he said.
R. Sivakumar, Head of Fixed Income at Axis Mutual Fund feels that from a policy-making stand point, RBI should be more objective as manufacturing sector inflation still seems to be contained. "RBI shouldn't react to the higher food inflation number," Sivakumar said.
"The RBI would be focusing on the strengthening of the currency on the back of lower geopolitical risks with the Syria situation controlled and potentially the Fed tapering easing off with the new expected chair," Sivakumar added.
August WPI inflation is the last major data point before the former IMF chief economist, who famously predicted the global financial crisis, holds his first policy meeting on Friday.
The Wholesale Price Index (WPI) for the month of August rose to 6.1% versus 5.795 in July. An ET Now poll had predicted the date to come in at 5.9%.
The headline inflation rose at the fastest pace for six months in August, driven by the jump in food prices. The food inflation for the month rose to as high as 18.18% versus 11.91% in July. Disruption in supplies of vegetables and onions due to summer rains has exacerbated price pressures.
Weighed down by concerns of a volatile and depreciating rupee, persistently high inflation and a huge current account deficit, Rajan is unlikely to reduce key rates in his September 20 monetary policy review.
Sujan Hajra, Chief economist at Anand Rathi Securities is of the opinion that the RBI won't act on rates in this meeting. "The WPI inflation is slightly more than the 5.5 percent we were expecting mainly due to the pressures from fuel and primary subgroup," Hajra said.
"I think the RBI won't act on rates in this meeting despite the higher-than-expected industrial output. However, I think it will unwind some of its cash tightening steps," Hajra added.
A Prasanna, Economist at ICICI Securities said, "Obviously this leaves RBI in a difficult situation because there is evidence that weak demand is having an effect on pricing power but still overall inflation is quite high on the retail side also. This means inflation expectation will continue to rule high."
"So the issue is current overnight rate at 10.25 per cent is too high but also returning to an overnight rate of 7.25 per cent may not be an option for the RBI. It is a challenging task for the RBI and communicate it to the market," he added.
"Developments in the currency market suggest that RBI should be in a position to start reversing its tightening measures, however, they have to be careful as market could interpret it as tolerating higher inflation," he opined.
Commenting on the inflation data, Deven Choksey, MD at KR Choksey Securities said, "Core inflation has fallen but food inflation is 18.18% and that is a problem. Market is interested in knowing that whether rates would come down, but I think it will be a courageous call."
"I am more confident now that RBI would be able to take care of situation but expecting a CRR cut is better," he said.
R. Sivakumar, Head of Fixed Income at Axis Mutual Fund feels that from a policy-making stand point, RBI should be more objective as manufacturing sector inflation still seems to be contained. "RBI shouldn't react to the higher food inflation number," Sivakumar said.
"The RBI would be focusing on the strengthening of the currency on the back of lower geopolitical risks with the Syria situation controlled and potentially the Fed tapering easing off with the new expected chair," Sivakumar added.
August WPI inflation is the last major data point before the former IMF chief economist, who famously predicted the global financial crisis, holds his first policy meeting on Friday.
The Wholesale Price Index (WPI) for the month of August rose to 6.1% versus 5.795 in July. An ET Now poll had predicted the date to come in at 5.9%.
The headline inflation rose at the fastest pace for six months in August, driven by the jump in food prices. The food inflation for the month rose to as high as 18.18% versus 11.91% in July. Disruption in supplies of vegetables and onions due to summer rains has exacerbated price pressures.
No comments:
Post a Comment