India’s policymakers to stay focused despite high inflation

  • Business
  • Wednesday, 15 May 2019

Barclays Plc expects to axe up to 12,000 jobs this year to cut costs but it is also paying staff higher bonus - EPA Photo.

MUMBAI: Inflation in India is rebounding and on course to accelerate after the world’s biggest election concludes this month. Yet that’s unlikely to distract monetary policymakers from their focus on supporting economic growth.

Data on Monday showed consumer prices rose 2.92% in April from a year earlier, compared with the 2.99% median estimate in a Bloomberg survey of 39 economists.

While the reading is the highest in six months, the price growth is, for now, well below the central bank’s 4% medium-term target for this year.

Retail fuel prices present the biggest threat to the central bank’s forecast, with the Indian basket of crude climbing to US$70.78 a barrel as of Friday from US$66.53 at the end of March.

That’s being offset by waning domestic economic activity amid a global slowdown and renewed US-China trade tensions, which gives the Monetary Policy Committee (MPC) room to maintain its dovish tilt after two interest rate cuts this year.

With indicators from car sales to liquidity suggesting that economic activity may be cooling, economists expect at least one more rate reduction in the coming months, possibly as early as the next policy meeting on June 3-6.

“With inflation expected to remain broadly anchored over the coming months, the case for further monetary accommodation gets stronger,” said Siddhartha Sanyal, chief India economist at Barclays Bank Plc.

He expects a quarter percentage point rate cut in the June MPC meeting, barring a sharp escalation in political uncertainties.

India will have a new government after May 23 when the election results of the lower house of parliament are announced.

State-run fuel companies have kept pump prices for diesel and petrol relatively stable during the elections, but may increase those after the seven-phase voting concludes later this month. — Bloomberg

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