'Agressive rate cuts can raise inflation beyond comfort level'

The Sensex is trading down around 0.2 percent, while the Nifty loses around 0.3 percent, as traders await inflation data any time now.

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The wholesale price index is expected to rise 7.6 percent in May from a year ago, the fastest pace this year. Meanwhile, DBS has said a 25 basis points cut in the repo rate is “all but certain”, while the chances of a 50 bps cut would increase if WPI inflation comes in below expectations.

“Inflation will have to overshoot considerably (such as above 8 percent) to cause any rethink,” DBS said referring to the case for a 25 bps rate cut.

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DBS expects WPI to be 7.4 percent, while sees core inflation at 5 percent.

However, aggressive rate cuts to spur growth could backfire, as they may raise inflation beyond comfort levels and increase depreciation pressures on the rupee, they added.

Reuters