India Fuel-Price Cut Alters Inflation View Before RBI Decision

India Fuel-Price Cut Alters Inflation View Before RBI Decision”

On growth, the RBI cut its 2017-18 forecast by gross value added (GVA) basis to 6.7 per cent from 7.3 per cent earlier.

The RBI said it expects inflation to rise from its current level and range between 4.2-4.6 per cent in 2nd half of 2017.

Key Indian equity indices surged to trade on a higher note after the country's central bank maintained its key lending rates prompted by rising inflationary pressure. The rate cut was the first in 10 months and brought policy rates to a near 7-year low.

Assocham has written to the Reserve Bank of India and the Monetary Policy Committee to cut the interest rates at least by 25 basis points, given the challenges being faced by the economy which needs immediate measures for revival of growth.

"I think government and the central bank is in sync".

"We expect the MPC to keep rates on hold and retain the neutral (policy) stance", said A. Prasanna, an economist for ICICI Securities Primary Dealership in Mumbai. "The implementation of the GST so far also appears to have had an adverse impact, rendering prospects for the manufacturing sector uncertain in the short-term". It is the rate at which RBI gives loans to the smaller banks.

India's retail inflation rate, which is the main price gauge that the RBI tracks, stood at 3.4 percent in August, sharply higher than the previous month's 2.36 percent.

The company also added, "We believe that the central bank may not cut rates in reaction to lower GDP numbers as they have reiterated that lower growth is more transient".

Worryingly, core inflation - which excludes energy and food - has remained even higher, reaching 4.6 percent in August amid stubbornly high prices in key areas such as health and education.

The RBI has long made clear that keeping inflation at around 4 percent, the midpoint of its mandated target of 2 to 6 percent, would be its policy priority. "A maximum of 25 bps is possible, if USA says they won't crunch liquidity anymore", said Samrat Dasgupta, CEO of Esquire Capital.

Reiterating its August policy, RBI said there are factors that continue to impart upside risks to this baseline inflation trajectory.

Even as core inflation in August rose to 4.6%, a spurt in food and fuel prices pushed wholesale inflation to 3.24 per cent - almost double that of the previous month.

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