Global financial services giant Citigroup has forecast that headline inflation in India is likely remain above the 9%-mark till December, before moderating to around 7.8% by March, 2012.
"We expect inflation to remain over 9% for the November-December reading. Post that, primarily due to the base effect, Wholesale Price Index (WPI) is expected to come off to sub-9% levels during January-February and end the fiscal year with a reading of 7.8%," Citi Investment Research and Analysis said in the latest issue of its 'India Macro Report'.
Citi's projection of fiscal-end inflation of 7.8% is higher than the 7% forecast made by the Reserve Bank at its second quarterly review of the monetary policy last month. Headline inflation has been above the 9%-mark since December, 2010.
It stood at 9.73% in October, the latest month for which data is available. With this, headline inflation has remained at an elevated level for 21 consecutive months. The RBI has raised key policy rates 13 times since March, 2010, by a total of 375 basis points, to curb demand and tame inflation. Citi said the elevated levels of inflation could pose downside risks to growth. "This is reminiscent of 2008, when the RBI was possibly the last central bank to keep hiking rates, which was one of the factors resulting in growth slipping to sub-7% levels," it said.
The RBI had last month revised its growth projection for the Indian economy in 2011-12 downward to 7.6% from the earlier estimate of 8%. Citi had also similarly revised its Gross Domestic Product growth forecast for India this fiscal to 7.6%.
The Indian economy grew by 8.5% in 2010-11. During the April-June period of the current fiscal, economic growth moderated to 7.7%, the lowest rate in six quarters.
Growth in industrial production has been sluggish over the past few months and fell to a two-year low of 1.9% in September. Experts have blamed the repeated rate hikes by the RBI for the slowdown in investments and industrial output.
At its last policy review, the RBI said the likelihood of a rate action at its next mid-quarterly review in early December is relatively low.