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Softening inflation may not lead to rate cut, say experts

The WPI data comes amid retail inflation rising to a high of 8.59%.

By: ENS Economic Bureau | New Delhi | Published: May 16, 2014 12:52:33 am

Headline inflation softened marginally to 5.20 per cent in April, compared to 5.70 per cent in the previous month as food and manufactured products’ prices eased.

However, experts cautioned that the relief notwithstanding, the Reserve Bank of India is unlikely to change its stance on key rates in the June review of the monetary policy, given the high retail inflation and the threat of a weak monsoon looming large.

The wholesale price index (WPI) released on Thursday showed that food inflation slowed down to 8.64 per cent from 9.90 per cent as price of vegetables and protein-rich items came down month-on-month. However, year-on-year, the food inflation rose by 8.64 in April compared to 6.08 per cent during the same period a year ago.

The WPI data comes amid the retail inflation (consumer price index) rising to a three-month high of 8.59 per cent in April and the index of industrial production contracting 0.1 per cent in March. Due to these factors, it is unlikely that the RBI will shed its conservative stance, experts said.

A CARE Ratings report said, “This is a relief, though admittedly, the RBI would be monitoring the CPI more closely. Also given the fear of the impact of the El Niño, no action from the RBI may be expected. Besides, while WPI shows a decline over March, the CPI shows an increase.”

The MET department is expecting a weak monsoon this year amid the threat of El Niño, stoking fears that the development may lead to a decline in farm production and a rise in prices.

Aditi Nayar, a senior economist of rating agency ICRA, said that the RBI is expected to maintain a status quo on the repo rate in the June policy review “with concerns related to the impact of a potentially unfavourable monsoon on the CPI trajectory remaining paramount”.

The WPI data comes amid the keenly watched political transition scheduled May 16. All the political parties have promised measures to check inflation, one of the major problems facing the country.

Commenting on the data, finance secretary Arvind Mayaram said that the inflation numbers appear “on track”. The February inflation data, meanwhile, has been revised upward to 5.03 per cent from earlier estimate of 4.68 per cent.

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