BENGALURU – Retail inflation in India likely rose further above the central bank’s medium-term target last month as food prices climbed due to lingering supply disruptions, a Reuters poll found, reducing the chances of another interest rate cut.
Persistent high prices have hurt the recession-stricken economy, which contracted a record 23.9% in April-June despite the Reserve Bank of India cutting its key repo rate by a cumulative 115 basis points since the pandemic started.
Although the government has eased some lockdown restrictions to help the economy, supply chain disruptions have shown little sign of abating as the virus continues to spread rapidly in India.
The Oct. 6-8 Reuters poll of 47 economists suggested consumer prices rose 6.88% last month from a year ago, its highest in five months and faster than August’s 6.69% rate.
If realised, inflation would be above the top end of the RBI’s medium-term target range of 2%-6% for the sixth consecutive month.
“An acceleration in food inflation and ongoing virus-related supply disruptions have kept headline CPI inflation higher than we had anticipated, but price pressures should ease soon,” said Shilan Shah, senior India economist at Capital Economics.
Above-average rainfall this year, a key determinant of yields in farming, is predicted to help reduce food-price pressures over the coming months.
But inflation running above target is expected to keep the RBI on the sidelines for the rest of this year, despite expectations the Indian economy will mark its first full-year contraction since 1979 this year.
The Indian government appointed three new external members to the Monetary Policy Committee on Monday after delaying the latest policy-setting meeting, which is scheduled to conclude later on Friday.
“We expect the RBI to remain cognizant of the price pressures but maintain their accommodative stance especially as it is food-led. Rate cuts will be delayed but not denied,” said Rini Sen, India economist at ANZ.
The poll also forecast that industrial output fell for the sixth month in a row in August, with a 7.5% decline, its longest falling streak since June 2009, as infrastructure output, which accounts for about 40% of total industrial production, contracted 8.5%.
October 9, 2020
Reporting by Indradip Ghosh; Polling by Shaloo Shrivastava, Md Manzer Hussain and Manjul Paul; Editing by Hugh Lawson
Our Standards: The Thomson Reuters Trust Principles.
Categories: India News