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Food inflation to decline by month-end: Basu

The country's food inflation, which is hovering above 12 per cent, will ease over the next two weeks but prices of non-food items are on the rise, chief economic advisor Kaushik Basu said on Friday.

business Updated: Jul 17, 2010 01:56 IST
HT Correspondent

The country's food inflation, which is hovering above 12 per cent, will ease over the next two weeks but prices of non-food items are on the rise, chief economic advisor Kaushik Basu said on Friday.

"It is reasonable to predict that the food price inflation that will be announced 2 weeks from now, that is, on Thursday, July 29, will be substantially lower than what the inflation is right now," Basu said.

India's inflation rate galloped to 10.55 per cent in June, up from 10.16 per cent in May.

After dropping for two straight weeks, food inflation had risen to 12.81 per cent for the week ended July 3.

A lot will still depend on an adequate monsoon, crucial for the summer-sown kharif crop that accounts for more than half of the country's food output.

While food inflation remain at elevated levels, core inflation, or prices of goods other than food and fuel, rose by 7.3 per cent from 6.7 per cent in the previous month.

"Though inflation has gone down and food prices have flattened, there is no denying we have to work on food production across the board and especially in some items where India is a major consumer," Basu said.

The higher inflation rate in June partly mirrors the increase in fuel prices, that were deregulated three weeks ago.

Economists expect the RBI to raise both repo and reverse repo rates at its quarterly policy review meeting on July 27.

A higher repo rate—the rate at RBI lends to banks—would make it costlier for banks to borrow, prompting them to charge more from final loan borrowers.

RBI uses the reverse repo rate — the rate at which it borrows from banks — to suck out excess money from the system to stymie demand.

RBI raised both the rates by 0.25 percentage points less than a fortnight ago to 5.5 and 4 per cent respectively.

"We expect the RBI to hike rates by 0.25 percentage points at the credit policy review on July 27," said Barclays Capital economist Rahul Bajoria.