High inflation numbers announced on Wednesday have dashed hopes of an interest rate cut by the Reserve Bank of India (RBI) in next week's monetary policy review. Consumer Price Index (CPI) inflation rose to 9.90% in November 2012 from 9.75% in October.
The increase in the retail inflation to near double-digits will play a decisive role RBI's mid-quarter policy review scheduled on December 18, in which consumers were expecting the central bank to cut policy rates.
Experts feel that rate cuts may now be pushed to January or March as industrial output growth rate bounced back to 8.2% in October compared to a 5% contraction a year ago.
"This data (industrial output) is unlikely to change the thought process of the RBI. We expect any repo rate cut being pushed to January, rather than immediately in December," said Indranil Pan, chief economist, Kotak Mahindra Bank. "With CPI at 9.9%, this also raises the risk that the rate change may get further pushed back to March 2013... the expected support for growth from the interest rate side could be missing."
RBI has clearly said in the past that inflation continues to remain a primary concern. Wholesale Price Index inflation for October was at 7.45%, much higher than the RBI comfort level of 5%, and it had kept the benchmark interest rate unchanged.
"The November CPI inflation data at a tad below 10% reinforces our call that RBI will maintain status quo on December 18," said Shubhada Rao, chief economist, Yes Bank.