NEW DELHI (Reuters) - Annual food inflation picked-up pace for the second consecutive week, strengthening the case for more fiscal steps in the federal budget to tame prices after the Reserve Bank tightened monetary policy last week.
Analysts said any hike in petrol and diesel prices as suggested by a government panel on Wednesday would further drive broader inflation.
High food prices, resulting in part from a poor harvest of summer-sown crops after the worst monsoon in nearly three decades, are spilling into broader inflation, which some economists say could reach double-digits by the end of the fiscal year in March.
"If fuel prices are freed, that will lead to increase in fuel, food and wholesale price inflation, though politically I don't see that happening as of now," said Bibek Debroy, an economist at Centre for Policy Research, a Delhi-based think tank.
The food price index rose 17.56 percent in the 12 months to Jan. 23, higher than an annual rise of 17.40 percent in the previous week, data released on Thursday showed.
The fuel index rose to an annual 5.88 percent, higher than an annual rise of 5.70 percent in the previous week.
Prime Minister Manmohan Singh, under pressure over high food prices, has scheduled a meeting of state chief ministers on Saturday to discuss steps to contain prices.
The Reserve Bank, which raised banks' cash reserve ratio by a higher-than-expected 75 basis points in its quarterly monetary review on Jan. 29, lifted its wholesale price index inflation forecast for end-March to 8.5 percent.
It also said it expected inflation to moderate starting in July, assuming a normal monsoon and global oil prices holding at current levels.
Finance Minister Pranab Mukherjee, who will present his budget for 2010/11 on Feb. 26, is expected to partially withdraw fiscal stimulus announced last year, while announcing more measures to contain food prices.
Policymakers say the government could increase fund allocation for the farm sector, rural infrastructure and tax incentives to the food processing industry to increase supplies in the market.
The finance ministry's chief economic adviser, Kaushik Basu, said last week that inflation was spreading to other sectors, but added that it would not go out of control.
India's economy is expected to expand by 7 percent in the current fiscal year to end-March, faster than 6.7 percent last year, helped by a recovering global economy and rapid expansion in domestic industrial output, a Reuters poll showed last month.
The economy grew 7.9 percent in the quarter through September, its fastest in 18 months, while industrial production grew in November at its fastest pace in more than two years at 11.7 percent.
Thursday, February 04, 2010
Morgan Stanley raises India FY11 growth f'cast to 8.5 pct
MUMBAI (Reuters) - Morgan Stanley raised its forecast for India's economic growth to 8.5 percent in 2010/11 from 8 percent earlier, citing a pick-up in domestic consumption and said interest rates would climb as inflation accelerates.
"The key driver for this higher growth will be domestic demand, particularly investments," the investment bank said in a research note on Thursday.
The stronger growth will be followed by higher inflation and policy rates, it said.
It forecast the reverse repo rate, the central bank's main short-term borrowing rate, to rise by 175 basis points in calendar 2010 from its earlier projection of 150 basis points increase. The reverse repo is currently at 3.25 percent.
Last week, the Indian central bank kept key rates unchanged but raised banks' cash reserve requirement, signalling it aimed to rein in the loose monetary policy that was put in place to head off the impact from the global slowdown.
Morgan Stanley also revised its gross domestic product growth forecast for 2009/10 to 7.1 percent from 6.7 percent earlier.
The Reserve Bank of India had last week raised its 2009/10 GDP projection to 7.5 percent from 6 percent earlier.
The U.S. investment bank has raised its non-food inflation expectation to an average 5.5 percent in 2010/11 from 4.5 percent earlier on build-up of domestic demand pressures.
It projected the Indian economy to grow 8.4 percent in 2011/12 from its previous projection of 7.6 percent.
"The key driver for this higher growth will be domestic demand, particularly investments," the investment bank said in a research note on Thursday.
The stronger growth will be followed by higher inflation and policy rates, it said.
It forecast the reverse repo rate, the central bank's main short-term borrowing rate, to rise by 175 basis points in calendar 2010 from its earlier projection of 150 basis points increase. The reverse repo is currently at 3.25 percent.
Last week, the Indian central bank kept key rates unchanged but raised banks' cash reserve requirement, signalling it aimed to rein in the loose monetary policy that was put in place to head off the impact from the global slowdown.
Morgan Stanley also revised its gross domestic product growth forecast for 2009/10 to 7.1 percent from 6.7 percent earlier.
The Reserve Bank of India had last week raised its 2009/10 GDP projection to 7.5 percent from 6 percent earlier.
The U.S. investment bank has raised its non-food inflation expectation to an average 5.5 percent in 2010/11 from 4.5 percent earlier on build-up of domestic demand pressures.
It projected the Indian economy to grow 8.4 percent in 2011/12 from its previous projection of 7.6 percent.
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