Tough times: High inflation and rupee's fall leave no room for more rate cuts

India’s headline inflation accelerated to 5.79 per cent in July, the fastest pace in five months, mainly driven by higher food prices and costlier imports as the rupee fell to a record low, government data showed on Wednesday.

Here is what experts have to say:

Rupa Rege Nitsure, chief economist, Bank of Baroda, Mumbai

“No doubt that the July print for headline inflation is very ugly with the major contributors being cereals, vegetables and fuel and power items.

“Despite an acute slowdown in domestic demand, the manufacturing prices have remained elevated due to rising input costs on account of massive depreciation of rupee.

“Policy options before the RBI are extremely limited even if the growth-inflation dynamics has worsened considerably.

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“The Central Bank’s focus will remain on currency and financial markets stability even if that means a further risk to growth. In all probability, the growth in FY14 will be in the band of 4.8 percent to 5.0 percent indicating a weaker year than FY13.”

Daniel Martin, Asia economist, Capital Economics, Singapore

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“Although today’s data is much stronger than expected, it doesn’t change the view on monetary policy.”

“Rupee’s fall and high retail inflation had virtually left no room for further monetary easing.

“June’s IIP data, high CPI and WPI inflation will maintain pressure on the rupee at least in the short-run.”

G. Chokkalingam, chief investment officer, Centrum Wealth Management, Mumbai

“Seasonal factors and heavy rainfall have contributed to the higher inflation. Some of the agricultural prices have gone up on the continued rise in diesel prices.

“Even without this inflation figure, India’s central bank doesn’t have much scope as the rupee is near record lows to the dollar. It’s a tough time for economy and markets.”

Aneesh Srivastava, chief investment officer, AT IDBI Federal Life Insurance, Mumbai

“Imported inflation because of the depreciation of currency, alongside onion prices, are impacting. This clearly suggests that Reserve bank of India will have less flexibility as far as action of rates are concerned.”

Radhika Rao, economist, DBS, Singapore

“The sharper-than-expected jump in the WPI inflation lends credence to the central bank’s cautious rhetoric.

“Despite timely rains, supply disruptions translated into higher food prices, with a double-digit rise after a four-month hiatus. Uptick in international fuel prices, coal costs and stark rupee depreciation fed into the fuel component.

“Underlying risks to price pressures and need to prioritise financial, along with rupee, stability, backs the case for status quo on rates.

“Hence the assumption that the change in guard at the RBI will mean a shift to looser policy stance appears out of place, with the broader macroeconomic backdrop to keep the new entrant on a cautious footing in the next few quarters.”

Anjali Verma, economist, PhillipCapital, Mumbai

“The data is pretty bad. Both food and fuel have surprised on the upside. It seems that the falling rupee is taking a toll via imported inflation. Corporates will have to pass on the high input costs to customers.

Reuters