Column : Surprise with a deep monetary policy easing
First, despite a series of price rationalisations that have reduced the degree of suppressed inflation, the WPI inflation trajectory is firmly lower than earlier projections, and current projections indicate that it is likely to drop below 7% by March 2013, below the 7.5% projected by RBI in October. Remember, that the September 2012 diesel price hike was likely to have added about 7 points to the fuel sub-index of the WPI, and 1.5 points to the headline WPI, but there were negligible second rounds effects in October, contrary to expectations. “Core” (i.e. non-food manufacturing inflation) is down to 4.2% (and looking to drop further in the next 9 months).
Then, there is the trajectory of WPI inflation, which was earlier expected to peak in December, but which now appears to have topped out in September. On a downward trajectory, it is unlikely that there will be major revisions in the provisional index numbers. If things go according to plan, the rupee is likely to strengthen, which will
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