NEW DELHI: Indian economy faces the worst blow of last 4 years.
India’s retail price inflation in November jumped to a 40-month high onhigher food prices, reducing the likelihood of the central bank cuttinginterest rates in the next policy meeting in February.
Food inflation rose sharply as unusually heavy rains at the end of themonsoon season hit crop yields and caused a spurt in prices of vegetablessuch as onions.
This is the second month in a row when the retail inflation has remainedabove the central bank’s medium-term target of 4pc.
Annual retail inflation increased to 5.54pc last month, faster than the4.62pc rate in October and ahead of 5.26pc forecast in a Reuters poll ofanalysts.
Increasing inflation and the growth rate slipping to a more than six-yearlow of 4.5pc in the July-September period could make policymakers and theReserve Bank of India walk a tight rope in the coming months.
Already concerns on the inflation front prevented the Reserve Bank of Indiafrom cutting its key lending rate for the sixth straight time earlier thismonth, despite slashing its growth rate forecast for 2019-20 to 5pc, whichwould be the lowest since the 2008 financial crisis.Economists said that the central bank would continue to hold the rates.
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“With the likely bottoming of growth and elevated inflation as well asconcerns on large fiscal slippages, the policy rate (by RBI) may remain inhold in FY20,” said Sujan Hajra, chief economist at Anand Rathi Securities.
Retail food prices, which make up nearly half of India’s inflation basket,increased 10.01pc in November from a year earlier, against 7.89pc inOctober.
Four analysts said November core inflation, which strips off food and fuelprices to reflect the demand in the economy, remained flat at 3.40pc-3.6pcagainst 3.44pc-3.60pc in October.
Weak demand is reflected in the power, fuel, real estate and sales ofvehicles, which have resulted in hundreds of thousands of job losses insome industries.
Economists expect the government to loosen its fiscal deficit target tofurther provide stimulus for the economy by cutting tax rates forindividuals, having already cut corporate tax rates to increase investmentin the economy.
