Inflation eases to 9-month low, RBI interest rates seen on hold for now

Mar 15 2014, 10:39 IST
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Wholesale prices, long seen as India's main inflation measure, eased to a 9-month low of 4.68 per cent in February. Wholesale prices, long seen as India's main inflation measure, eased to a 9-month low of 4.68 per cent in February.
SummaryIn January, wholesale prices, long seen as India's main inflation measure, rose 5.05 per cent.

prompted analysts at Credit Suisse to predict three more rate increases of 25 basis points each, beginning in the September quarter this year.

"This may sound hawkish but if the governor is truly committed to crushing inflation expectations much higher rates are likely to be required in time," said Robert Prior-Wandesforde, director of Asian economics research at the financial services company.

To what extent this forecast materialises would depend on the support Rajan receives in his inflation fight from a new government after the elections in April and May.

Finance Minister P. Chidambaram, has already cautioned against inflation targeting, advising the central bank to give equal focus to price stability and growth.

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The outlook on food prices could keep both the RBI and the government on their toes.

Hail and heavy rains in the past two weeks have damaged crops, which may push up food prices again.

An uncertain outlook for this summer's monsoon rains due to the El Nino weather pattern is also worrying policymakers.

Any flare-up in food prices will not be a good news for the ruling Congress party.

It is seeking a third term in the national elections but is trailing in most opinion polls and is widely expected to be defeated, in part due to its failure to control inflation and arrest the country's economic slowdown.

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