Inflation at 11.89%; Experts expect RBI to raise rates.

>> Friday, July 25, 2008

Inflation for the week ended July 12 is at 11.89 % versus 11.91%.

A CNBC-TV18 inflation poll conducted earlier, saw inflation for week the ended July 12 at 11.89%.

Inflation for week-ended May 17 was revised to 8.66%, it had earlier been estimated at 8.10%.

So, what do experts see RBI doing next?

Mohan Shenoi, Treasury-Head, Kotak Mahindra Bank, said the chances of RBI pursuing a wait-and-watch policy has increased substantially as WPI has reached a plateau after a rapid rise and international crude oil prices also seems to be coming down. “RBI might just focus on managing liquidity and give the policy rate hike a pass this time. However, the RBI might make some announcements on CRR in order to curb liquidity and to show that inflation is still a concern.”

RVS Sridhar, Senior Vice President‑Treasury, Axis Bank, expects a repo rate hike by RBI. “I don’t see a hike in CRR. There will be some volatility in the next few weeks or months depending on the trajectory of inflation and the expectations on RBI action. Crude oil coming down and should be a great help in these conditions.” He sees interest rates for 10-year bond yields at around 9.25%.

Shubhada Rao, Chief Economist, Yes Bank, said these last two weeks’ numbers definitely point to some stability in the week-over-week increase in prices. “It is going to need significant effort to bring down the week-over-week index number much lower. If the current trend of marginal week-over-week increase continues for a larger part of the year, we could see inflation peaking at around 14-14.5%. Beyond that we could see it lowering. On the flipside, the patchy performance of monsoon is something that we need to watch out for.”

She sees inflation arising in primary articles. “There should be some relief on manufactured product prices. I expect double-digit inflation for a larger part of the current fiscal because the index has risen much higher in the last six week.”

She does not see a rate or CRR action by RBI. She sees rate action between two policy periods, i.e. between July and October.

Inflation Internals:

  • Primary articles up 0.6%
  • Food Articles up 0.6%
  • Coffee up 8% and Fruits and Vegetables up 2%
  • Moong and Jowar up 1%
  • Tea down 2% and Spices down 1%
  • Non-Food Articles up 0.8%
  • Sunflower and Raw Rubber up 3%
  • Rape and Mustard Seeds up 2%
  • Fuel, Power, Light and Lubricants was unchanged
  • Manufactured Products up 0.05%
  • Textiles down 0.1%
  • Tyre and Cord up 1%
  • Basic Metals and Alloys up Marginally
  • Lead Ingots up 6% and Zinc Ingots up 3%
  • Machine and Machine Tools up 0.2%
  • Electrical and Elec Equipment up 0.2%
  • Edible Oil down 0.3%, Oil Cakes up 0.6%
  • Synthetic Resins and Plastic Materials up 0.2%
  • Electical Industrial Machinery up 0.4%
Source:- MoneyControl
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