Saturday, June 20, 2009
India’s inflation is likely to stay in “negative territory” for several months before surging above the central bank’s target early next year, economists say.
The benchmark wholesale-price index fell 1.61 percent in the week to June 6 from a year earlier, the first decline since December 1978. Accelerating inflation later this year and into 2010 will compel the Reserve Bank of India to maintain a “cautious stance” on monetary policy, said Angus To, an economist at BNP Paribas SA in Hong Kong.
“Deflation in wholesale prices should offer scope for the RBI to cut interest rates again in order to offer additional stimulus to the economy,” said To. “However, the stubbornly high food prices will keep the central bank on a more cautious stance, preventing any aggressive action.”
Central bank Governor Duvvuri Subbarao slashed interest rates to record lows since October to help shield India from the worst global recession since the Great Depression. Signs that Asia’s third-largest economy is now recovering prompted Subbarao last month to suggest it might be time to start thinking about reversing “expansionary” policies.
“The Reserve Bank is close to the end of its easing cycle,” said Rohini Malkani, an economist at Citigroup Inc. in Mumbai. “At best one can expect a 25 basis point cut before it starts hiking rates in the second quarter of 2010.”
Other analysts say the central bank’s cycle of interest- rate cuts has already ended and that Subbarao’s next move will be to increase borrowing costs. The governor and his Reserve Bank colleagues next meet to set policy in Mumbai in late July.
(Bloomberg)
India’s inflation is likely to stay in “negative territory” for several months before surging above the central bank’s target early next year, economists say.
The benchmark wholesale-price index fell 1.61 percent in the week to June 6 from a year earlier, the first decline since December 1978. Accelerating inflation later this year and into 2010 will compel the Reserve Bank of India to maintain a “cautious stance” on monetary policy, said Angus To, an economist at BNP Paribas SA in Hong Kong.
“Deflation in wholesale prices should offer scope for the RBI to cut interest rates again in order to offer additional stimulus to the economy,” said To. “However, the stubbornly high food prices will keep the central bank on a more cautious stance, preventing any aggressive action.”
Central bank Governor Duvvuri Subbarao slashed interest rates to record lows since October to help shield India from the worst global recession since the Great Depression. Signs that Asia’s third-largest economy is now recovering prompted Subbarao last month to suggest it might be time to start thinking about reversing “expansionary” policies.
“The Reserve Bank is close to the end of its easing cycle,” said Rohini Malkani, an economist at Citigroup Inc. in Mumbai. “At best one can expect a 25 basis point cut before it starts hiking rates in the second quarter of 2010.”
Other analysts say the central bank’s cycle of interest- rate cuts has already ended and that Subbarao’s next move will be to increase borrowing costs. The governor and his Reserve Bank colleagues next meet to set policy in Mumbai in late July.
(Bloomberg)
Posts
0 comments
Post a Comment