Inflation likely to touch 8 percent by March
By Vaibhav Aggarwal
Dec 15, 2009
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Inflation is likely to touch 8 percent level by March 2010 and the current trend may lead to policy actions as early as January, said economists.

"If the current sequential uptrend is maintained, the Wholesale Price Index appears likely to cross 8 per cent year-over-year by March," Citi economist Rohini Malkani.

In the quarterly policy review in October, the apex bank revised its projection of inflation from 5 percent to 6.5 percent by the end of the fiscal 2009-10.

The Wholesale Price Index (WPI) soared to 4.48 percent in November from 1.34 percent in October.

The weekly data revealed that food inflation had increased by 19.04 percent during November registering the sharpest increase in the decade.

This is due to worst monsoon since 1972 which badly affected the kharif crop leading to a decline in food grain production. There has also been a drop in production of milk sugar and vegetables.

Sonal Varma, Vice President at Nomura said that the trend in inflation was likely to continue. "We expect WPI inflation to rise to 8 per cent y-o-y by March", she added.

She also said that the rate hiking might start from January. She expects a hike of Cash Reserve Ratio, the percentage of deposits banks have to park with RBI, before that.

"We expect a cumulative 125 bps of hikes to each of the CRR, repo (rate at which RBI lends to banks) and reverse repo rate (at which RBI borrows from banks) by end-2010," she said.

Citi's Malkan, too, expects 125 basis points tightening in 2010.


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