Interview :: StanChart sees 2 successive rate hikes as CPI lets down


Oct 14, 2013, 07.16 PM IST | Samiran Chakrabarty, Regional Head of Research

Higher-than-expected CPI and WPI numbers may trigger the Reserve Bank of India (RBI) to hike interest rates in October and December, believes Samiram Chakraborty, head- research, Standard Chartered Bank.

After the disastrous consumer price index (CPI) inflation that stood at 9.84 percent , Samiram Chakraborty, head- research, Standard Chartered Bank says there is a high possibility of the Reserve Bank hiking rates in its monetary policy in October and December.

Speaking to CNBC-TV18, Chakraborty says the CPI numbers came in higher than expected, just like the wholesale price index inflation (WPI).

However, there does seem to be a possible respite in sight. “This is the period when prices should cool off and actually anecdotally even within the month of September, the first half food prices were very high. The second half food prices relatively cooled off. So, if this trend continues in October also then probably we have some good news ahead,” he adds.

Below is the edited transcript of Chakraborty’s interview to CNBC-TV18.

Q: What a disaster of a number 9.84. This looks like one rate hike won’t be enough?

A: For both inflation data today, the numbers have been substantially higher than market expectations and this is clearly posing question marks in front of RBI on the need for inflation management. We will see renewed focus on that going forward. We are expecting two more rate hikes one in October, one in December. We are now comfortable holding on to that call because our view on inflation being somewhat more persistent turns out to be true in this instance. I am also looking for further break-up of the data.

Q: Worst is vegetables that is a 35 percent rise year on year (YoY). May be the broad numbers will make more sense to you. Food and beverages is up 11.4 percent, while clothing, bedding and the non-food items are up 9.3 percent YoY. Is it giving you the impression that non-food CPI is also high?

A: That is what I would tend to think. My rough estimate would be that it is in the range of 8.3-8.5 on the so called core CPI. So, just like the core WPI has inched up in this month it looks to me that even the core CPI has also inched up.

Q: With the data you have what is the sense you are getting about inflation. We are pretty close to double digit inflation. You think that peaking off of inflation is not round the corner? What is the year-end number you are working with for both WPI and CPI now that both core and food inflation are continuing to rise?

A: We had factored in something like a 7 percent on WPI as the peak and something around 10 percent on CPI as the peak and then a gradual coming off from there. What is really difficult to predict today is the food price component. This is the period when prices should cool off and actually anecdotally even within the month of September, the first half food prices were very high. The second half food prices relatively cooled off. So, if this trend continues in October also then probably we have some good news ahead but otherwise this food inflation is turning out to be very sticky. Unfortunately that will have implications for the headline number and for monetary policy as well.

Source : http://goo.gl/XlM3yC

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