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RBI rate cut hopes revive as WPI inflation dips a tad

HT Correspondent,  New Delhi, December 14, 2012
First Published: 15:22 IST(14/12/2012) | Last Updated: 22:59 IST(14/12/2012)

After an unexpected spurt in factory output — which grew by 8.2% in October — benchmark inflation in November marginally eased to 7.24% from 7.45% a month ago, providing some respite to policymakers.


The Reuters poll had forecast a marginal increment to 7.6%.

Inevitably, the focus has returned to the Reserve Bank of India’s policy review next month, with expectations mounting that interest rates would be cut.

Analysts also expected the central bank to reduce the cash reserve ratio — the proportion of money that banks have to park with the RBI — to inject more liquidity into the financial system.

Inflation as a measure of the Wholesale Price Index stood at 9.46% in November last year.

While WPI showed some signs of easing primarily due to softening of prices in non-food manufacturing items, government data showed retail inflation as inching up to 9.90%, driven primarily by the price of food, which constitutes 14.3% share in the WPI basket.

“Inflation worries the government..  while CPI inflation is sticky, good news is that WPI inflation seems to be trending downwards...If it trends downwards, there will be some reason for comfort,” finance minister P Chidambaram said on Friday.

“The ease in WPI is comforting and comes as a surprise, this would create space to RBI to take steps, though we need to see if the trend holds,” said DK Joshi, chief economist, Crisil.

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