Inflation is likely to remain high at near 8% levels by December end due to high government deficit and strong growth in rural wages, a Morgan Stanley report said on Thursday.
High government deficit and strong growth in rural wages (at around 20% year-on-year for the last three years) are key factors keeping inflation expectations high, the report said.
"WPI inflation is likely to remain high in the 8-8.2% range until the quarter ended December 2012 and it is expected to 'moderate' to around 7-7.5% level by quarter ended March 2013," the report said. Wholesale price index-based inflation was at 10-month high level of 7.81% in September.
The report also said that the Reserve Bank of India is "facing a dilemma on policy action in the current stagflation-type environment". "While growth is slowing, inflation remains a challenge," it said.
The RBI will come out with its policy review on October 30. The industry has been demanding a rate cut to boost economic growth.
The macro conditions of the country warrant a delay in policy rate reductions, Morgan Stanley said.
{{/usCountry}}The macro conditions of the country warrant a delay in policy rate reductions, Morgan Stanley said.
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