Accelerating consumer price as well as wholesale price index inflation for October have added to the market’s worries. Negative macros with a fall in Index of Industrial Production (IIP) are likely to guide Reserve Bank of India to extend its neutral monetary policy stance for two more months.
In its policy review meeting on 6 December, the six-member monetary policy committee is expected to keep benchmark interest rate unchanged on fears of rising inflation.
Analysts say CPI for October at 3.58 per cent may still be below the RBI’s approved 4 per cent trajectory but rising crude oil prices and further tweak in Goods and Service Tax have potential to create elevated pressure on consumer inflation as well as WPI. The CPI has been on rise consistently since June.
Commenting on CPI and WPI acceleration, Japan’s Nomura said, “HRA (under 7th Pay Commission) and GST effects are to be blamed for higher underlying momentum in inflation and accordingly RBI is expected to stay on hold through 2018.”
According to Morgan Stanley, “given the rise in headline inflation and steady core inflation, we do not expect the RBI to ease further in the upcoming monetary policy statement.”
Considering the decline in factory output, the GDP is unlikely to improve for second quarter of FY 2017-18, say analysts. In Q1, it had declined to 5.7 per cent. Next thing to look forward to now would be GDP data for September quarter, due for a release later this month.