India’s retail inflation in Dec likely within RBI target: survey
A poll of around 45 economists suggests retail inflation fell to 5.28% in Dec from 6.93% in Nov
BENGALURU: India’s retail inflation likely fell sharply in December, landing within the Reserve Bank of India’s (RBI) target range, due to a significant drop in vegetable and food prices, a
Reuters poll predicted.
The January 5-7 poll of around 45 economists suggested retail inflation fell to 5.28% in December from 6.93% in November.
“Food inflation—particularly vegetable prices—are beginning to correct since supply lines are being restored in food aided by good monsoons,” said Prithviraj Srinivas, chief economist at Axis Capital in Mumbai.
Inflation had been above the central bank’s target range of 2-6% for the eight months since April, a streak not seen since August 2014.
If it matches the poll forecast, December would be the lowest inflation print since November 2019, giving some relief to the RBI, which has been caught between boosting economic growth and curbing high inflation.
The RBI slashed interest rates by 115 basis points in March and May to stimulate growth in an economy battered by the coronavirus pandemic, but it has held the key repo rate at 4% since then, cautious of rising inflation.
“The recent rally in commodities lends to a fresh cost-push impact. Room for outright rate cuts is, thereby, limited, but the central bank will settle into a long pause, with a bias to anchor rates through strong dovish guidance,” said Radhika Rao, economist at DBS Bank in Singapore.
India’s economy is on course for the sharpest annual contraction on record, but the latest government estimates suggest that the biggest challenges of the pandemic are behind it, with the economy expected to expand in the fiscal second-half.
The Indian economy is projected to contract by a record 7.7% in the year ending March 31, the first time in more than four decades, the National Statistical Office said in its first advance estimate on Thursday.
The forecast for the contraction is steeper than the 7.5% slump estimated by the country’s central bank.
The Narendra Modi administration imposed a strict lockdown to contain the spread of the pandemic in late March.
The shock caused Asia’s thirdlargest economy to shrink by almost a quarter in the June quarter, but economic activity rebounded as the government lifted restrictions, with the pace of contraction slowing to 7.5% in the September quarter.
The Union finance ministry in a statement said the advance estimates reflect a continued resurgence in economic activity in the fiscal third and fourth quarters and forecast a V-shaped recovery.
“The relatively more manageable pandemic situation in the country as compared to advanced nations has further added momentum to the economic recovery,” the ministry said.
The statistics ministry’s estimates expect the farm sector to grow at 3.4% in FY21 and the manufacturing sector to contract 9.4%.
Among services, the trade, hotel and transport sector is the worst affected and is expected to shrink 21.4%.
On the demand side, the government’s final consumption expenditure is estimated to support economic recovery, with a projected growth of 5.8%.
While the economy contracted 15.7% in the six months ended 30 September, the first advance estimates of (gross domestic product) GDP suggest that it will expand 0.6% in the second half of the fiscal year. The advance estimates project India’s nominal GDP to decline 4.2% to ₹194 lakh crore, sharply lower than the ₹224 lakh crore assumed in the Union Budget presented in February last year.
This is expected to complicate budget calculations and widen the country’s fiscal deficit.