Retail Inflation at 8-month High, Dampens Rate Cut Hopes

Higher food prices pushed India\'s retail inflation to an eight-month high in June.

Published: 13th July 2015 07:36 PM  |   Last Updated: 13th July 2015 07:40 PM   |  A+A-

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NEW DELHI: Higher food prices pushed India's retail inflation to an eight-month high in June, government data showed on Monday, dampening hopes of an interest rate cut by the central bank in the near future.

Retail prices rose to 5.4 percent year-on-year in June, higher than the 5.01 percent print in May and the 5.1 percent annual rise predicted by analysts in a Reuters poll.

Food prices were up 5.48 percent from 4.8 percent in May.

"The surprising factor for CPI to go up was that it was food driven ... we expect the RBI (central bank) to be on hold for now," said Sonal Varma, India economist at Nomura.

A stronger-than-expected rise in prices is likely to fuel fresh inflation concerns for the Reserve Bank of India (RBI), which targets inflation of 6 percent by January.

Economists said the latest number will dampen enthusiasm for what would be the year's fourth rate cut, particularly given a patchy start to the rainy monsoon season.

A Reuters poll released last month showed economists expected the RBI to keep the policy rate unchanged at a policy review next month, but cut it by 25 basis points in the final quarter.

"Any hope of a rate cut in the near future is off the table now, given this kind of number, combined with the fact the monsoon has been weaker in the last couple of weeks," said Gaurav Kapur, senior economist at the Royal Bank of Scotland.

India recorded above-average rains in June but forecasters have said the rains, critical for about half the nation's farmland that lacks irrigation facilities, would remain subdued in large parts of the country in the first half of July.

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