Nov WPI at 7.52%: Now RBI will have to hike rates, say experts

Mumbai: India’s headline inflation surged past analysts’ expectations to a 14-month high of 7.52 percent in November, government data showed on Monday, after food prices rose at the fastest clip since June 2010.

The wholesale price index’s annual rise compared with a 7 percent jump forecast by economists in a Reuters poll. In October, wholesale prices, India’s main inflation measure, rose 7 percent.

Food prices rose 19.93 percent year-on-year in November, faster than an annual rise of 18.19 percent in October.

Here are some of the reactions:

DARIUSZ KOWALCZYK, SENIOR ECONOMIST EX-JAPAN ASIA, CREDIT AGRICOLE CIB, HONG KONG

“The high print means RBI has to hike rates or lose credibility after it reacted negatively to the CPI data last week. However, the rise in inflation is purely food-price driven.

“Rate hikes will not correct food prices, the hawkish intention is a mistake, in our view, and will lead to slower growth, which will also pressure the INR. INR assets should fall across the board after the print. We remain highly negative on the INR and see 72 at the end of calendar ‘14.”

A PRASANNA, ECONOMIST, ICICI SECURITIES PRIMARY DEALERSHIP LTD, MUMBAI

“The surprise in the headline number is largely due to food inflation though manufacturing inflation is well behaved. So I don’t think RBI should overreact to this data. Our view is RBI will raise rate by 25 basis points to 8 percent at the policy review and pause. Now that the headline inflation has moved up they need to be seen doing something.”

SUJAN HAJRA, CHIEF ECONOMIST, ANAND RATHI SECURITIES, MUMBAI

“I still think the RBI will increase the policy rate by 25 basis points for now. I am looking at a total 50 bps of hike for the financial year. I don’t think the government will be completely averse to a rate hike as it has said that inflation remains its biggest worry.”

UPASNA BHARDWAJ, ECONOMIST, ING VYSYA BANK, MUMBAI

“With a broad based rise in inflation across segments, we expect RBI to address the issue by hiking policy rate by 25 bps this policy. We had earlier expected them to pause. While food inflation has been the key driver, the forward guidance by RBI would remain biased towards anchoring inflationary expectations and monitoring the food price trajectory.”

Reuters