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Aug inflation to remain close to 10%

business Updated: Sep 11, 2011 11:39 IST

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With headline inflation hovering around the 10-digit mark, the Reserve Bank is likely to raise its key policy rates again in its mid-quarterly review of the credit policy later in the week.

The inflation numbers for August will be released on September 14, while the Reserve Bank of India's (RBI) mid-quarterly policy review is slated for September 16.

Experts said the headline inflation in August is expected to be close to the double-digit mark which will keep RBI on the path of tight monetary policy.

"We expect inflation numbers to be in the range of 9.5-10% for August... RBI is likely to hike rates by 25 basis points in its mid-quarterly review," Crisil Chief Economist D K Joshi said.

He said pressure would be on all fronts, including food, non-food primary articles and manufactured items.

"Inflation is mostly broadbased. So, there will be pressure on each segment of the basket starting from food to manufacturing," Joshi said.

Inflation, as measured by the Wholesale Price Index (WPI), stood at 9.22% in July. It has been above the 9% mark since December last year.

RBI has hiked its key policy rates 11 times since March 2010 to tame inflation.

India Inc has said that repeated rate hikes have affected investments by raising borrowing cost.

The economy grew by 7.7% in April-June, the slowest in six quarters.

"Inflation for August is expected to be around 9.7 due to higher price of primary articles. Mostly, inflation is broadbased and not limited to any particular segment," Standard Chartered Global Research Senior Economist Anubhuti Sahay said.

The sustained price pressure, she added, could prompt the Reserve Bank to continue with its tight monetary policy.

"RBI is likely to hike policy rates by 25 basis points in the upcoming policy review," Sahay said.

While food inflation is close to double-digit mark, the rate of price rise of non-food primary items is over 11%.

Meanwhile, manufactured inflation, which constitutes over 65% of the WPI basket, is over 7%.

Experts also said that after a final rate hike on September 16, RBI may go for a halt in its monetary tightening policy.

"Headline inflation is expected to rise to around 9.7% for August... which is likely to prompt the RBI to raise the repo rate by 25 bps in the upcoming mid-quarter review. However, inflation is expected to ease in the subsequent months which suggests that policy rates may be close to a peak," ICRA economist Aditi Nayar said.