INSUBCONTINENT EXCLUSIVE:
Space for RBI to hike rates is limited unless inflation crosses 5% consistently, says an economist.The headline inflation data is subdued
for now, but there are mounting risks that are difficult to ignore: a currency at a record-low, high oil prices, and looming elections
that's prompting the government to raise food prices to placate farmers
Consumer prices rose 3.77 per cent in September from a year earlier, the Statistics Ministry said in a statement on Friday
That pace is well within the target set by the Reserve Bank of India
The median of 39 estimates in a Bloomberg survey of economists was for a 4.02 per cent gain.Inflation within the targeted range and signs
that demand may be cooling in the world's fastest-growing major economy prompted the central bank to keep interest rates on hold last
week, and lower the forecast for gains in consumer prices
The RBI expects inflation in the range of 3.9 per cent to 4.5 per cent in the second half of the fiscal year to March 2019, down from 4.8
per cent projected earlier."The rise in crude oil prices, the sharp weakening of the rupee, and the revision in minimum support price for
farmers are likely to push up the headline inflation above 4 per cent in the ongoing quarter," said Aditi Nayar, principal economist at ICRA
"These risks, combined with the change in stance from neutral to calibrated tightening, suggest a likely rate hike in the December 2018
policy review,"The Monetary Policy Committee's change to a more hawkish stance comes amid concerns that surging oil and volatile financial
markets could add to price pressures and offset the comfort from falling food prices.DetailsFood and beverage prices rose 1.1 per cent,
clothing and footwear prices rose 4.6 per cent, fuel and lighting prices rose 8.5 per cent, housing prices rose 7.1 per centWhat Our
Economists SayWeaker than anticipated inflation data over the past few months suggests that the change in RBI's policy stance to
calibrated tightening was rather premature and only highlights the central bank's hawkish bias
Abhishek Gupta, Bloomberg EconomicsIndia, which imports more than 80 per cent of its oil needs, is vulnerable to increasing crude prices
Together with the rupee, Asia's worst-performing major currency this year, this worsens the outlook for inflation and the current-account
Besides, the government's move to raise support prices for farm produce will add to the inflationary pressures.According to the central
bank, a 20 per cent increase in the price of the Indian basket of crude to $96 a barrel would dent growth by 30 basis points and stoke
inflation by 40 basis points
The price of Brent crude, the benchmark for half the world's oil, is hovering above $80 per barrel as impending American sanctions squeeze
Iranian exports and an economic crisis in Venezuela disrupts supplies."We do not think that the RBI's rate-hike cycle has come to an end,"
said Sujan Hajra, chief economist at Anand Rathi Financial Services Ltd
"Yet, with the real policy rate at 250-300 basis points, headroom for the RBI to carry out rate hikes is limited unless inflation crosses 5
