Looming inflation may hamper interest rate cuts

ANI | Updated: Nov 26, 2017 14:10 IST

New Delhi [India], Nov 25 (ANI): Inflation is expected to remain a key concern both for the government and Reserve Bank of India (RBI), thus reducing hopes of a cut in interest rates, the ASSOCHAM said.

This comes in the wake of the recent surge in prices of vegetables and crude oil that has left vendors as well as the customers in lurch.

"However much over-leveraged India Inc may wish it, the macro indicators like inflation and inflationary expectations point towards the opposite. So realistically speaking, we should keep our fingers crossed and hope that things do not become apt for taking interest upward, rather than downward. The RBI mandate as also the track record is that it has favoured hard stance against inflation rather than batting for growth, while the government's friendly advice for downward rates may not be available this time around," the ASSOCHAM note for its key Managing Committee members highlighted.

It said the RBI has a mandate to keep the retail inflation in the band of four per cent and the Consumer Price Index growth for October at 5.38 per cent points towards the threshold, the central bank may not like to breach.

"While the October numbers show fuel and light inflation at 6.36 per cent annualized, and vegetables at above 7 per cent, onion and tomato may take the retail inflation further up in November. Firming up crude oil prices are adding to the anxiety," the note said.

"Thankfully, rupee remains stable thanks to robust foreign investment in stock market and through FDI route; or else the currency movement on the upside for the dollar could further make imports more expensive. The geo-political situation in the Middle East, especially the deteriorating equation between Iran and Saudi Arabia is causing further anxiety, leading to high crude prices," said ASSOCHAM Secretary General D S Rawat.

While analysts are giving different takes on the upper level of crude, crossing the 70 dollar per barrel is not ruled out. Anything above this level could be a headache for India, the chamber cautioned.

Besides, rising prices of steel and other metals like aluminium, copper and so on are pushing the cost of manufacturing. Therefore, the inflationary expectations would be seeping even in the core inflation (non-food, non-fuel). Going forward, both external and internal factors would weigh on the mind of the Monetary Policy Committee of the RBI.

To that extent, the macro picture may pose a challenge even as corporate India hopes for growth revival, which may now have to depend on factors other than cost of borrowing, the chamber noted. (ANI)

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