NEW DELHI: India’s headline inflation probably stayed near a two-year high in June even as industrial production in May likely contracted, increasing the odds that the central bank will keep interest rates on hold next month. Consumer prices in June are estimated to have risen 5.73 per cent on an annual basis, according to a Reuters poll, a tad lower than May’s 5.76 per cent – the fastest pace since August 2014.
That would be a worry for outgoing Reserve Bank of India (RBI) Governor Raghuram Rajan, who wants inflation kept below at five per cent by March 2017. The August 9 policy meeting will be the last for Rajan, whose three-year term ends in early September. Between January 2015 and this April, he cut the repo rate by 150 basis points, to 6.50 per cent.
After holding rates in June, the governor said the central bank was looking for room to reduce them further, but it remained concerned about pressure on food and commodity prices. Demand-driven pressures are likely to be stoked by the hike of salaries and pensions for about 10 million government employees and pensioners. Vegetable prices, meanwhile, have surged due to seasonal supply disruptions. While a pick-up in summer monsoon rains in recent weeks is expected to cool food inflation, most analysts don’t expect another rate cut before a new governor is on the job. DBS in Singapore expects a rate cut in the October-December quarter.
