Higher fuel costs drove up India's headline inflation to its highest level in five months in March, data released on Wednesday (April 12) showed, vindicating a central bank decision last week to keep its policy rate on hold amid concern about prices.
Consumer prices rose by an annual 3.81 per cent last month, their fastest pace since October 2016, compared with February's 3.65 per cent increase, the Ministry of Statistics data showed.
The rise, however, was slower than the 3.98 per cent forecast by economists in a Reuters' poll.
Retail fuel inflation accelerated to 5.56 per cent in March from 3.90 per cent a month ago. Food prices rose 1.93 per cent on the year, slower than a 2.01 percent annual increase a month earlier.
Worries about a possible flare-up in food prices, should India experience below-average monsoon rains this year, forced the Reserve Bank of India (RBI) to keep its key lending rate on hold for a third straight meeting last week.
But more surprisingly in a subtle shift to a tightening bias, the central bank raised the reverse repo rate - what banks get for deposits at the RBI — by 25 basis points, to help mop up excess liquidity in the banking system.
CommentsTirthankar Patnaik, India Strategist, Mizuho Bank, Mumbai"Overall inflation data is largely in line with expectations and a marginal increase in fuel inflation is surprising. An RBI rate hike this year seems very unlikely as the March inflation data is slightly lower than the central bank's estimate."
Samrat Dasgupta, Ceo, Esquire Capital Investment Advisors, Mumbai"If you look at the IIP (industrial output) data, capital goods and manufacturing segments, they have not hit the mark, and hence I don't expect the central bank to raise rates.
"I don't think that the RBI's policy will be governed by the impact of demonetization any further as the focus will now shift to policies coming out of the U.S., while back home, monsoons will play a significant role."
Anjali Verma, Economist, PhillipCapital India, Mumbai"They (RBI) are aiming to get (consumer inflation) down to 4 per cent, and from that point of view, a rate cut is not advisable. Therefore, it'll be a prolonged hold (for the repo rate).
"A rate hike can happen if all the factors that RBI highlighted in the last monetary policy — a GST impact, impact of the 7th pay commission, monsoon - are not good.
"If everything becomes worse together then towards the end of the financial year 2018 there is a slight risk (of a rate hike)."
(Reuters)
